Renting vs. buying: When is it better to buy a house?

Near the end of 2012, economists observed that the housing sector has been showing clear signs of recovery. Builders have started construction on the most houses and apartments since 2008 and more people have been encouraged to return to the real estate market as buyers and sellers.

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Given this optimistic outlook, the home loan specialists at Network Capital Funding Corporation have observed that many consumers who are currently renting an apartment were already considering buying their own home. There are pros and cons to both renting and to owning one’s own home, but are the record mortgage lows and the recovery of the housing sector enough reasons to go from renter to owner?

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Considering that a house is by no means a small purchase, buying one may not always be a good idea. In many areas, the cost of owning a home – with taxes, interest, insurance, and other fees – is significantly greater than the cost of renting. Undoubtedly, though, people do consider buying a house as part of their long-term goals as owning one can give them stability and freedom.

A good time to buy a house is, of course, when it costs less than to rent. To find the right timing, consumers can find two similar houses, one for sale and one for rent, and divide the asking price by the annual rent to get the price-to-rent ratio.

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According to this article by David Leonhardt on the New York Times: “A rent ratio above 20 means that the monthly costs of ownership will exceed the cost of renting,” so it is better to buy when the rent ratio is closer to 10. Other factors still come into play, such as the buyers’ financial stability, but finding the rent ratio is a good way to know if housing is overpriced in the area.

For more information about the housing industry, visit NetworkCapital.net.