Many people wonder whether renting or buying a home is better decision. Most of the time, history has shown it is a smarter financial move to purchase a home than to rent. The final decision is unique to each situation of course. Here are a few points to note about both renting and buying.
- May require a larger initial investment – the deposit (usually a mortgage is 20% of the sale price)
- You must be responsible for all upkeep otherwise value is affected
- If you want to move, your home generally must be sold
- Equity may go up, down, or stay stagnant depending on the home’s value
- Over time, the mortgage balance decreases and equity builds
- The ability to remodel and redecorate the home to match your needs and desires
- There can be tax advantages attached to home ownership
- Smaller amount of “up-front” cash
- When the lease is up, you can just move
- Costs for the term of the lease are more fixed
- Not gaining equity, but not losing it either
- Generally less work in maintaining a home or apartment
- Even if the property goes up in value, you will never gain equity
- Limitations on what you can do to “make it your own”
- No tax advantage to renting
Today we live in a more transient society. People move around a lot more with their jobs, are getting married later and want more flexibility with their living arrangements. There also doesn’t seem to be as much emphasis placed on the importance of having your own home. Long term renting is becoming more and more common. A concerning reason for this trend is that it is becoming increasingly difficult to afford to buy a home, firstly save for the deposit and secondly be able to afford the mortgage repayments, especially in the major cities and more highly desirable and expensive areas. Housing affordability has increased from 2.1 times the average income to over 5 times the average income over the last couple of decades.
Under the cureent economic situation I have myself looked into buying another home. But for myself I cant get conventionally a 20% deposit as the eqity in my first home has fallen below the loan amount which I know has happened to many many people out there. Although this is not a problem for me bcause I do not intend to sell. The rent covers the mortgage payments and it works for me. But due to this I cant get another loan for another home to live in in Christchurch. So I have been forced with renting.
What I have found though is for my situation renting may not be the worst thing for me to do at the moment because housing prices are surely to come down further as this year unemployment and money problems worsen in this country. In saying that there has been some hugely increased sales volumes as of late. I am putting this down to the low interest rates where hungry cash ready investors see some good buys out there at a good interest rate. An investor friend of mine told me they were not worried if the price of the property dropped another 10% in value over the next year. They can see good returns at the current prices and the current interest rates to make it work. They also went on to say which is correct that the rice of property will go up again. A recession doesnt last forever.
If you are in my situation and find yourself unable to buy at the moment a house whether its your first or second or what and you find yourself haing to rent the best thing I think to do at the moment is find a relatively good priced property and cut your expenses down and save for a while. I believe the current cycle of good buying will not be over for some time. So if you sit down now and save you might be able to buy again when the horse is about to take off again. Thats what I am doing 🙂