Owning vs. Renting a Home: Advantages and Disadvantages
The American real estate market hardly needs advice. Until recently, it has remained the largest in the world as investment in the U.S. real estate and businesses have guaranteed the highest profitability, return on investment, and reliability. However, it is the U.S. housing market that has triggered the global economic crisis, and the fall of which the experts do not otherwise known as a “landslide”. What is the current investment climate in the country, which has been a recognized leader of global business for decades? Until the global economic collapse of the U.S. financial sector and, in particular, the real estate market was a magnet for investors and entrepreneurs. Purchase of residential or commercial property in the U.S. has been seen as an extremely good investment and as the deal profitable and attractive in all respects for many years. But now consumer preferences are more and more inclined towards the rent of not only commercial, but even residential property. Purchasing of housing becomes unreasonable in many cases. Such changes in direction of vector of preferences was caused by number of economic factors, of global and national scale, which will be considered in our research
Preferential mortgage terms, a wide range and variety of loan programs and financial incentives of business, these and several other factors have provoked incredible hype and speculative flywheel of real estate prices. After the bankruptcy of a number of lending institutions and developers bubble burst and the U.S. housing market collapsed in the gulf which could not think for even experienced business analytics since the Great Depression. Liquidity of real estate was not zero, but rather negative: a significant number of objects passed into the ownership of banks as a result of mass bankruptcies of private households, as well as commercial structures. As a result, oversupply appeared in the market, far exceeding demand, which, in turn, caused a further chain reaction of a collapse in prices.
Reaching the bottom, real estate prices in the United States began to rise. The annual index of real estate prices rose in the last 5 years.
According to Zillow, the last year index of housing costs in the U.S. rose by 0.2% (Yoder, 2012).
Prices rose in 53 of the 167 in the researched cities. The greatest increase in the cost of housing was recorded in Phoenix (12.1% in the year of the end of the first quarter of 2012). (Yoder, 2012) According to the forecast for 2013, prices will rose in 67 of the 156 cities, with analysts expect the new leader will be Phoenix where home prices have increased over the year by 9.9%. Also, a significant increase in the cost of housing is expected in Miami - 6.1%. The average property price has risen over the year by 1.1%. (Curtin, 2012)
According to Stan Humphreys, Zillow Chief Economist, “after four growth in property prices in the U.S., we may assume that the price bottom is reached, and making optimistic forecasts” (Propertycommunity.com). He also noted that the recovery of the U.S. real estate market is going on in the recovering despite the continuing high level of unemployment, but there is still some risk.
The foreclosure real estate mortgage is reduced.
According to the National Association of Realtors, in June 2012, the average price of a house in the U.S. was $ 189,400 - up 7.9% from a year ago. However, the level of sales of real estate has continued to decline (Geffner, 2013).
- The most important decisions for every American are to make a choice between buying and renting property. This decision is influenced by a number of factors, such as the financial situation and the way of life. It is not easy to decide as there is a very large sum of money at stake. In this study, we will examine this issue in all its aspects, starting with an overview of the U.S. real estate market.
Currently, the U.S. housing market is still showing signs of the debt crisis.
According to SV Development, in 2012, the number of seized banks housing increased for more than half in the major regional centers in the U.S. with a population of over 200 thousand people (Leonardt, 2005).
According to the report of RealtyTrac, the situation is still better than in 2010, when the number of foreclosures peaked at 181 of the 212 local markets in the country (85%), (Barton, 2012).
In December, 2012, sales fell in the secondary market in the United States contrary to expectations. Decline in sales compared to November is 1%. In addition to statistics for December, there were also revised data on sales of the U.S. real estate market in November - from 5.04 to 4.99 million units.
In general, despite the decline in sales in December 2012, the figure rose to 12.8% compared to December 2011 The average house price in the secondary market increased by 11.5% to $ 180,800. Reserves of unsold houses fell by 8.5% to 1.82 million units in December (The World Street Journal, 2012).
At the current sales pace official inventories of unsold houses in the U.S. will be depleted by 4.4 months. It has been the lowest figure since May 2005, but there should also consider the so-called “shadow stock” housing inventories on the balance sheet of banks. According to some estimates (in particular, The Wall Street Journal), as of September 2012), they are about 6 million units (The Tax Rules for Renting Out Your Vacation Home, 2012).
Today, any sphere of economics and business in the United States does not cause so much controversy as the residential real estate. Developers and real estate agents urge Americans to buy homes immediately: prices with the onset of the crisis have fallen sharply, and the average interest rate on mortgage has fallen to 3.29% (provided that the loan will be repaid in fifteen years) - the lowest in the past six decades. Specialists that deal with property letting have a different opinion. They believe that buying a property in the midst of the economic crisis is risky.
Firstly, no American is safe from layoffs, forced relocation (in the case of unemployment), and divorce (today, this unpleasant process belongs to the main reasons for the loss of real estate).
Secondly, any house or apartment purchased starts to depreciate from the first day. In the modern conditions, this process is much faster than 10 - 15 years ago.
Thirdly, in America, there is a constant flow of uncontrolled immigrants. Fashionable areas become breeding grounds for crime and private communities. Thus, people are leaving entire cities in large numbers. Tenants of housing opposed to property owners can always easily change their place of residence.
The real estate market remains unstable. Despite the fact that, in some areas the prices are no longer declining, there still exists the likelihood that house bought at current prices may soon become cheaper.
For people who are going to move, the easiest way to find what is more profitable - rent or purchase – the ratio of value for sales to the rental cost. To calculate it, it is necessary, according to Dean Baker, co-director of the Center for Economic and Policy Research in Washington, DC, to compare the two houses of the same size and condition, one of which is for sale and the other is for rent. Naturally, these houses must be located in one area (Baker, 2010).
The price of the house for sale should be divided by a total cost of renting a second home for a year. If the result is greater than 20, then the house, which is put up for sale, most likely, will be even cheaper, and, therefore, the best choice is to rent. If the result is 15 or less, it is unlikely that prices would drop significantly, and therefore, it makes sense to decide on a purchase.
Factors Concerning the Style of Life
The labor market in the U.S. is characterized by the high level of competition and fast changes. An employer can experience some difficulties in the company's finance and make a decision to lay off a certain part of personnel. Such a fact causes a problem for an employee who is forced to seek other job. The development of new technology makes many jobs obsolete. Also, other reasons can force people to move to another place. In the conditions of today's mobility of the labor force, professional interests are one of the most common reasons of moving from one city and region to another.
The presence of own home makes appropriate adaptation to changes in the labor market and career possibilities difficult. Selling a home can demand a long period of time (of course, depending on the situation on the real estate market) while a person should relocate urgently due to the need for labor. Those who rent homes can use much more freedom of travel and are ready to move at any time.
Among youth, there is a preference to rent an accommodation. Usually they rent an apartment in the house until they find a permanent job or until they do not create a family. Single people do not tend to buy a house before getting married. They are concerned that the preferences of spouse concerning home, what and where it should be may differ. Older people also often do not live in their own houses because of various reasons. They prefer living in the special establishments for the elderly, thus being able to use a variety of social services provided in such places.
Though, a lot of people still have strong intention to buy a house. To live at own house, to make renovation in accordance with own taste, to design the landscape, to choose the interior, to feel security of tenure of private garden do bring great moral satisfaction. Moreover, the owners of homes are usually in greater extent involved in the life of society than people who rent housing. Sometimes it is not always so. Tenants, naturally, does not express much care about the place of their living as they feel themselves as guests at the place they live now.
Factors of Finance
Purchasing a home is a useful step. If the aim of purchasing is to make an investment, there are no any reliable expectations or any strong guarantees that this will be the best investment of money. There was a period in the United States when an increase in house price was observed. That was a stimulus for people to buy additional properties, using it as an investment tool. Investing in real estate was always considered as safe tool with a good prospective. Today, in the conditions of postindustrial society, characterized by cardinal changes in the economics concepts, it cannot be considered as one of the most reliable investment tools. Moreover, due to the recent crisis, the cost of housing in the U.S. has plummeted. It should be noted that today, it became much more difficult to make any forecasts concerning a deep nature, a duration of crisis, and a reasonable financial activity during the period of crisis.
In the USA, buying a house has an essential advantage – the provision of tax facilities by the state. In addition, over time, a person builds equity, which increases the paid price of the house, and which can ever be used for other financial transactions. In case of repaying the loan in full, buying a home ensures financial security. Even if the economic environment becomes worse, legitimate owners will not be left without ”a roof over the head” (of course, excluding war or forcible state upheaval).
On the contrary, the tenant constantly has to give his/her earned money (often hard earned) to the lessor. The tenant will not be able to return this money in anyway. Even he/she takes part in paying property taxes by the owner, he/she cannot deduct the payments from the income subject to tax. Moreover, the level of rent payment has a tend to raise from year to year, leaving behind the level of salaries. The final argument is that at any time, the lessor may ask the tenant to vacate the premise, just forcing the tenant to make unexpected changes in his/her life planes.
The supply of housing that is for sale in the United States are as diverse as America itself. There are luxury mansions in Beverly Hills and penthouses in Manhattan, worth millions of dollars, as wellas small apartments sold for $ 10.8 thousand. If even to count the only offer for $ 4.5 thousand the very last option and not take it into account the number of homes for sale for $ 25-30 thousand,we can talk about such housing as a separate economic category.
According to professionals familiar with this market, in most cases, we are talking about the objects, promising investments in which raises very serious doubts.
Olga Mark Landsberg of Beverly Alliance Real Estate Investment Group offers potential buyers to answer the question, “Why do business and pragmatic Americans, who never miss their own benefit, cannot find thirty thousand to such a tempting offer?” (Beverly Alliance Real Estate, 2013)
Possible answers are: a house is sold in unsafe “working” area or in a rural area where the chances of its lease are close to zero, or it has serious structural defects. Any object can be photographed with a successful angle, where there are no visible defects of the building or place. When the buyer is given a complete description of the area, he/she quickly understands everything and starts searching from $ 30 thousand. In the end, the buyer chooses a subject for $ 100 thousand, but with a guarantee of the monthly income from rent.
In Florida, the private property starts from about $ 7.5 thousand in many cases. These low-cost houses are either in poor condition or made of plasterboard and wooden building blocks. Typically, this property is located in areas where the cost is limited by purchasing power of the local population.
Sergey Kashin, the president of Florida Dom Inc (Miami, FL), says that, if for investment capital to choose the house of concrete in areas where the jobs is (to have potential tenants and buyers in the future), then the cost will be approximately $ 90 million and more (Moody’s Analitics. Housing Market Monitor, 2013).
Financial Factors that should be Taken into Account
Glen MacMehan (2009) believes that, if the lifestyle factor does not have great significance, it is possible to do a simple calculation with the purpose of determination which is more profitable for a concrete person - renting or buying. The following data should be used for the calculation:
- The rate of an annual increase of rent.
- The level of increase and decrease of the house price over time.
If the level of rent rates shows a rapid growth (for example, 10 or more percent per year (which is uncommon), it is evident than it is much more profitable to buy a home than to pay increased rent. Usually, during the period of recession, real estate prices are falling; thus, the rent becomes a more reasonable variant.
Obviously, besides the growth of rent and the changes of value of the real estate – there are other factors that should be considered before making a decision. Interest rates and terms of repayment do have significance. As a rule, the above mentioned parameters are sufficient to choose between purchasing and renting. The today's economic situation, when real estate prices are record low, is advantageous, especially for those who want to buy homes. However, if a potential buyer is interested in purchasing a property not just to live, but also as an investment tool, he/she should take into account and analyze the possibility of further declines in prices.
In many cases , in addition to independent assessment, it is also reasonable to address for advice to professional financial specialists or planners.
Buying a Home in the United States: Highlights
Buying own home is a dream of every American. It is the basis of so-called “American Dream”. People who do not have their own homes meticulously look for a place to stay and are desperate to acquire their own home.
Dream of own house is always bright and rosy. In practice, the process of buying a home often results in strong emotional stress. Buyers are beginning to feel the brunt of the amount of a quarter million dollars (or more), they will have to pay. They are wondering what the interest rate loan - fixed or floating - they must choose. They try to find the best lender and verified its solvency. They will have to sign a stack of documents, to communicate with a variety of agents, and to invest in various unforeseen payments. Buying a home means that a person will have many years to live in debt. Therefore, homeowners are struggling to find money for the full repayment of the loan.
As a result, people often feel a strong fear of buying a home. However, a detailed examination of the buying process will help them to cope with this problem.
Types of Mortgages
Loan for buying a home in the U.S. is called mortgage. The main two types of mortgages differ in the way of interest - a loan with a variable interest rate and a loan with a fixed interest rate. The ARM mortgage rate will vary with the economy. The fixed percentage means that the percentage will remain constant for the duration of the loan.
When the process of obtaining mortgage is supposed to be started, it should be remembered that in most cases, there is the initial payment (Down Payment).
Obviously, the more money a person can make when buying a home soon, the smaller is the amount of borrowed money, and the lower is the monthly payments on the receivables. Most lenders require the down payment. The value of this contribution depends on many factors: the type of the selected lender, the loan amount, the age of the home, and even the state of the economy. Usually, the amount of down payment for the purchase of housing is 20% of its total value. Down payments can be reduced if they are covered by insurance of mortgage debt. In this case, the party company guarantees to pay the loan on the insolvency of a debtor. Insurance of mortgage debt is done by the Federal Housing Administration. For more information on this type of insurance, a bank or a lender should be provided with more information concerning the type of insurance.
Gift Items (Discount Points)
Some lenders offer to pay out the so-called “discount points” (discount points), thereby reducing the interest rate. Payment of items can save on the interest a lot of money, especially if a person plans to get a long-term loan. One point is usually equal to one percent of the loan amount. That is, if to take a loan for $ 250,000, then the item will be equal to $ 2,500. When choosing to pay 10 points, the lender will give a total $ 225,000, although a tenant will have to pay all 250,000. Thus, the lender earns you $ 25,000 (but real contribution to this amount is not made, this is in contrast to the prior payment). In exchange, it will reduce the interest rate on the loan (Asabere &. Hoffman, 2011).
The question is what will be more profitable to pay points or percentages? This all have to be carefully calculated. It will be easy to do, if the interest rate on the loan is fixed.
Usually, it is advantageous to choose the discount points when the loan period is not less than 6-7 years. Some believe that it is better to make a higher down payment than to agree to pay for items. Thus, all the options should be considered before making a final decision.
Stay within Budget
If the interest on the loan is small, and the payment is not a burden, people sometimes begin to think about buying a bigger house. It is important to keep the fees at a level that a person can actually afford. Financial advisors say that mortgage payments, insurance, and taxes should not exceed 30% of monthly salary. Also, it should be remembered that the home is often in need of repair, painting, lawn maintenance, costs of water and electricity, and other costs. It is rational to make an estimate for the maintenance of the house, which will reflect all future costs. After this, the final decision can be made concerning how much money can be spent on loan repayments.
The purchase of new housing, the dreams of many potential buyers in the current market conditions in the U.S., loses its meaning. “The increase in the number of properties excluded from the owners for the debts on mortgages, undercut prices for second homes, while new buildings, on the contrary, become more expensive” writes Prian.ru referring to the Associated Press.
The median price of a new home in the U.S. is 48% higher than the object has already been to use. In more “healthy” market, this figure should not exceed 15%.
Such a variation in prices may slow the market recovery. It is evident that the share of new homes has a few home sales, but construction has a positive impact on the economy as a whole, giving the work in a variety of industries. According to the National Construction Association, thanks to the construction of each new home, economy receives an average of three jobs and 90 thousand dollars in taxes. When no one is buying a new home, the economy is going to “blow away”.
”If I could buy profitable floor lamp and housing on the secondary market, then I would need the new construction? “- says Mark Vitner, senior economist at Bank of Wells Fargo. – “A relatively small group of people can afford a mortgage and down payment and does not care for their work as only such people can buy a new home”.
Price spread between the “primary” and ”secondary” cell is increased because the finished houses are losing value because of an overabundance of the excluded items and fast sales that occur in case the lender allows the owner to sell the house for less than the mortgage granted for its purchase (US Real Estate Insights, 2012).
We should mention also another fairly common type of modern home buyers – are “amateur investors”. These people are ready to buy the house in the distance, making conclusion about its safety just by the pictures in the internet. Andy Doyle, a California dweller, bought the house in Alaska for $ 130,000. This buyer has experience in real estate, so he weighed all the “pros” and “cons” before making payment. He ignored the golden rule of Riel Estate: If you buy a property, then you must either live in it or rent it. The roof of the house could not stand a lot of snow as nobody cleaned it, and thus, the house literally collapsed. The insurance company refused to pay for this damage. After all, if the snow had been removed in time, the damage would not have occurred.
Is it true that the rent – is a waste of money? Not exactly. Some facts suggest that, in some cases, it is better to rent a property in the U.S. than to buy it.
Uollok Richard and William Ross, senior officials of the agency in San Francisco, are engaged in commercial real estate. Both are qualified specialists in the field of real estate and, in many ways, have a common point of view. By coincidence, they both were hunting for housing in the city in the summer. Surprisingly, they made completely different solutions.
Ross and his wife had rented an apartment in the prestigious Marine before they decided to purchase a condominium nearby. “We understand that buying real estate when the market is on the rise is unprofitable, - Ross says - but we expect to save on taxes.”
Meanwhile, Uollok and his wife have sold their home in Presidio Hights, where they lived for 18 years. As their two children went to college, the house was too big for a couple. They moved into a two bedroom apartment in the neighborhood. Instead of having to buy an apartment, they decided to rent it. “My friends and I, for those over 50, only shook his head, looking at the real estate market and stocks. In our view, both of them are overpriced. Not that we wanted to collapse, but they are confident that in time this will happen”.
Ross and Uollok discussed their solutions with each other. Decision on buying a home should not be based solely on price. Both are agree to it. First of all, other characteristics: the prestige and security of the area, amenities, condition of transport communications, etc., are to be considered. At the same time, no one wants to lose money on it. Ross bought his apartment for 775,000 dollars. Uollok who helped for their home four million dollars has to pay 10 thousand dollars a month for the new apartment.
Who is right? And what is cheaper: buy or rent? It is necessary to consider future plans, in order to answer this question. When we mean the apartment, it is usually more profitable to purchase than to lease only if you live in it for at least 6 years (Hamilton, 2010). However, the average length of stay in the apartments is 4 years, and for young people not related by marriage, it is even less than 2 years.
If a person is to live in his chosen home for many, many years, the best option is to buy. Significant tax incentives can save a large amount.
With the aim to make the decision justified, it is necessary to make simple calculations. Specialists advise to identify all the expenses on purchased property and the amount of property taxes (collectively, usually it is about 30 percent of the cost). Then the amount received from the rental amount, similar to the property, should be subtracted. The resulting figure will be the income from the purchase of an apartment or house. In percentage terms, it ranges from 5 to 10%. In this way, it is rational to evaluate the effectiveness of investments.
Much depends on the market situation. It is useful to keep in mind that renting a property means to dispose the remaining funds, invest them, for example, to shares of the same fund with making operations in real estate market or to stocks. Comparing the profitability of investments, it is safe to say what is better - rent or purchase - in each case.
We should not forget about taxes. According to U.S. law, every property owner in the U.S. has the right to include the cost of purchased property to the expenses. Investments in mutual funds do not have such privileges. Thus, it is rational to consider the presence or absence of tax benefits.
Naturally, as in any other country, real estate prices may vary that depends on the region. For example, in New York City, it is very expensive to rent an accommodation (income from the ownership is 7%). This makes the purchase very profitable. In Boston, the situation is completely different (the rate of interest income is 2%), and therefore, it is cheaper to rent a house or apartment.
All of this can be confirmed by real examples. When Curtis and Kathleen Browns decided to move to Manhattan (New York area), they began to seek housing at a price of $ 3,000 per month. The proposed apartments seemed to be too small, and in the end, they decided to buy an apartment of 2000 square foot in the house designed by renowned architect I Pei. The deal amounted to 860,000 dollars. Monthly payments (operating costs, taxes, and interest payments on the loan) are estimated at $ 6,500.
The Browns believe they are very lucky, and they are absolutely right. Barbara Corcoran, a real estate agent, says that if family rented this house, the monthly payment would be no less than $ 8,500. The rate of return from buying for the Browns was 8.3%. It is believed to be a decent rate.
Real Estate in Washington is much cheaper than in New York or San Francisco. Christopher Bakey, a writer and journalist, could afford to buy; though, considering all the “pros” and “cons”, he preferred to rent an apartment. His real estate agent doubts that he would sell him an apartment for less than 250 thousand dollars. In this case, the income from the ownership will be only 4%. It is clear that in this case, it is unprofitable to buy.
The important role is played by instinct. Let's go back to Ross and Uollok. Now, Bill Ross has an income of 4.3% of the purchase of the apartment. However, he expects that prices will rise. “San Francisco is a beautiful and dynamic city. It is surrounded by water on three sides, and thus, the following feature creates a lack of space for development. This will cause a rise in prices”.
Dick Uollok who rents housing, by contrast, believes that the generation of baby boomers in retirement, will prefer the countryside to the cities, and property prices in cities will fall.
The Internet also causes fierce debate about the benefits of buying and renting real estate. Owners of large spacious houses and families living in small rented apartment share their experiences. There are more than enough of cautionary tales.
Thus, the 27-year-old Martin Walsh, having accumulated a bank balance of $ 65,000, lost his job. He decided to “start over” and moved from New York, where he paid $ 1,200 for rent of a 1-bedroom apartment in Las Vegas (Nevada). Walsh bought a large single-family house, built in 2005, for $ 40,000. He spent another $ 10,000 on the improvement of housing. “For a while, it appeared to me that my long-time dream come true’ - says Walsh. “I was happy and was proud of the absence of debt. Only 2 - 3 months later, I began to realize where I moved ... “ (Hughes, 2012).
As for places where rent is definitely more profitable than buying, there is a list of 50 cities, led by New York City, where the average rent of the apartment is a record $ 2,980 a month. Buying bedroom apartments in Manhattan will cost 36 times more expensive than renting, which is almost $ 1.3 million in the Fort Worth (Texas). There tenants pay rent of $ 9.5 million in a year. Thus, the number of new condominiums is small, and housing prices are too high. The rental cost is 32 times less than the loan payments for the purchase. In the following cities, rent is many times less than the monthly payments on the loan: Omaha (NE) - 27 times, Seattle and San Francisco - 24 times, Kansas City - 22 times (The Ultimate Rent vs. Buy calculator: Which is better, renting or buying? 2013).
According to experts, the various costs at the conclusion of the sales contract and the payment of the various commissions and taxes can offset the monetary gain on the acquisition of real estate. Moreover, customers are not so easy to find a bank willing to lend 80% of the transaction value. Not everyone has money and the initial 20% deposit, which valued at $ 200 thousand of $ 40 thousand for a house. In addition to paying the loan, the next expenses , such as cost of maintaining the home, the property taxes, insurance, heating, utilities ,and regular maintenance are put on the owners. That is why many Americans are not in a hurry to buy housing, contenting rent (Residential Rental Property, 2013).
Share price should sell houses for a total cost of renting a second home for a year. If the result is greater than 20%, then the house, put up for sale, is likely even cheaper, and therefore, the best choice is to rent. If the result is 15% or less, it is unlikely that prices would drop significantly, and therefore, it makes sense to decide on a purchase (Munarriz, 2013).
The sociologists of the University of California found that more adult Americans continue to live in the family home. So, at the moment, at least 6 million people in the U.S. aged 25-34 still live with their parents. They do not consider such a situation “uncomfortable.” “Times and morals have changed ” says Andrew Turner of the University of California. “If thirty years ago, 11 % of young people could not imagine such a situation living with the parents, now we see that the number of people choosing the parental home has increased dramatically, it is about 22 %” (Morgan, 2006).
According to sociologists, the trend was manifested in 2007, primarily due to economic conditions, inability to find a stable job, and pay loans for new housing. More than 60 % of Americans surveyed who live with their parents do not see anything wrong with this. The other 40 % are convinced that as soon as finances allow, they will certainly move to a separate apartment or house. In addition, polls show that more young people get back to their parents for reasons of “inconvenient, uncomfortable and expensive housing.” “Living in a dorm or rented apartment is worse and more expensive than with parents, “ the 27-year-old Anne says. “It is better to pay for the portion of utilities and other expenses in the family home, and saving for own homes, rather than spending money on rent”. “Of course, it is much more pleasant to live separately because there is no need to adjust, but under certain agreements and compliance with the rules, it is comfortable to live with mom and dad than where it is not clear,” - she said (Gillies, 2009).
Sociologists believe that trend will only take root, despite the fact that several generations of Americans were brought up on the principle, “A fter coming of age, you need to stop living together with their parents and to be completely separated”. “Perhaps in the challenging economic environment, it is the best option. People may try to save money on their own homes, rather than to spend on finance lease only because it so accepted in society,” said Andrew Turner. Marketers also have caught the real estate market changes. According to a real estate company that is based in Los Angeles, “in the last four years, fewer young people rent apartments for the long term; it is a short-term and a half to two years”. (Santa Barbara Sociology, 2013)
Data provided by Marcus & Millichap, and non-profit Council for Community and Economic Research in Arlington, Virginia, have established the most attractive city for retirees. In this case, were taken into account the cost of repair of household appliances, and the average monthly payment when buying a home is calculated based on the average prices in the IV quarter of last year and according to the fact that the initial payment of 10%, and the fixed rate calculated for 30 years mortgage - 5.07%. Recommendations are given by Naji and Lawrence Yun, chief economists of the National Association of Realtors (Marcus & Millichap Real Estate Investment Services, 2012).
In Albuquerque, New Mexico, the average house will cost $ 197 178 000, and its content will be 1160 dollars per month. Tenants will have to pay 667 dollars per month, and the cost of repair of household appliances will be 64.98 dollars – it is 7% higher than the national average. According to Nagy, the local real estate market does not develop, and therefore, the prices are slightly higher than they should be (Marcus & Millichap Real Estate Investment Services, 2012).
In Charlotte, North Carolina, the home is worth 186 945 dollars, and the payment amount is 1217 per month. Rent is almost half the price - 677 dollars a month, and tenants will have to pay 62.25 dollars for the repair of household appliances; it is 2% more than the national average. City home prices are above the average - 174 000 227 dollars. At the same time, the rent time is cheaper than the national average - 937 dollars, and the number of vacant houses is 11.3%. Thus, it is more profitable to rent an apartment or house (Marcus & Millichap Real Estate Investment Services, 2012).
In Greenville, South Carolina, the house costs 138 929 dollars, and 904 dollars per month should be sent on its contents. Rent is about 570 dollars, and repair of techniques - to 61.89 dollars - 1% more than the average. As rental rates and property values are lower than at the national level, so both options can be equally beneficial (Marcus & Millichap Real Estate Investment Services, 2012).
An increasing number of young people in the U.S. do not want to have a home. On the one hand, this trend proves that there is a growing number of “perpetual tenant” in the USA. On the other hand, it promotes the construction of new apartments.
Many of those who do not own real estate in the United States have been forced to abandon their homes because of the bankruptcy or arrears in the payment of credit. Others find their own home is too expensive and risky to treat. They are not going to invest in its acquisition; although they could afford to buy it.
According to the Associated Press, the number of American property owners reached its lowest level in four years - from the time when in the U.S. housing market collapsed. In 1998, the number of renters in the country was 31.6% of the total population. In 2011, this figure increased to 33.6% and has been growing quickly. During this time, almost 3 million property owners went to the camp of the tenants. According to Harvard's Joint Center for Housing Studies, another 3 million will join them by 2015. Currently, nearly 38 million American citizens rent accommodations (The World Street Journal, 2012).
Experts note some signs of rising rental market in the U.S. The pace of construction of apartments rose by 115% from October 2009, when a significant drop in the volume of construction in this segment was register. Although the number of apartment buildings erected still lags behind pre-crisis levels, the number of the permits for construction - visual “sensor development” of the industry - reached in March the highest figure in the last two years. It was issued to a record low in the annual comparison the number of permits for the construction of single-family homes (Clancy, 2013).
Walsh felt the hard way the consequences of “unemployment the highest in the country, poverty, and crime”.
Walsh, like many other “adventurers” (basically a never-married and unmarried men and women), appeared in a “golden cage”. It is good, but to leave its borders is not recommended.
Another common category of buyers are families with children, representing typically middle class. Their logic is: “Why to pay rent if the monthly payments on mortgage are not at all the above? It is better to pay for your property than for someone else!”
At first glance, the logic is strong. However, if this statement were true, U.S. residents would acquire and would not lose property. For example, instead of paying $ 1,800 for a rent of home, the Hargerts from New York's Queens bought it. Even without down payment, the monthly amount of 30-year mortgage was $ 1,740.
The Hargerts, however, were pleased not for a long time. When they learned about many taxes that they would have to pay to a “native” city, state, and federal government, it became evident that they would be sorely missed the money. Buying has brought various problems.
The conclusion is that now, as our research showed, rent of housing in the United States became better alternative than purchasing, in the present, rather uncertain, post crises conditions.
The monthly rent amount cannot be equal to the sum of the monthly cost of a house. Therefore, when buying real estate, a person should consider not only the amount of the monthly mortgage payment, but minor charges, and rules of the increase of those payments. It is likely that the most unpleasant surprises are awaiting homeowners only 5 - 10 years after the purchase.
Moreover, interesting fact should be noticed, that change of current consumer preferences towards rent is supported by some social tendencies, for example there are more and more cases of living adult children, even after creating a family, with their parents, which earlier was uncommon for American society.
Such a convergence of economic and social factors concerning the USA real estate market anyway is an interesting new phenomenon, development of which it is hardly to predict, and which could be an independent subject of investigation.