Tuesday, November 21, 2006
A good time to rent??
I'm getting the question of "is it a good time to buy or rent" a lot these days. Well it can be a good time to do either, but it always depends on your own situation.
If you have been paying attention to my sales charts, you will see that the average price of sale for a home in this area has been holding fairly steady. Up a bit sometimes, then down a bit. I think of it as flat lining. What will it do in the future?? I really don't know, however IF you need to know you should contact a financial advisor.
On a few occasions recently I've been asked this question by some younger couples in the 20 to 29 year old age groups. And typically these folks do not have money in their savings account, at least not enough for a substantial down payment. So to get them into a home today they would be looking at a low down, a zero down, or some other kind of loan that would involve perhaps the seller funding the closing costs on behalf of the buyer.
Since the market has changed, so has my answer. I've told them that if they were asking me this in 2003 my answer would have been 'buy' a home. Why?? Well, the average starter home in Kingman (a typical 3 bed, 2 bath, 2 car garage 1300 square foot home on a city lot) was in the $65,000 to $95,000 price range. That meant that if they had a low or zero down payment (and could qualify for financing) they would have a mortgage payment that was just a little less than what they might find for the same type of home as a rental.
Well we all know what has happened since 2003, don't we?? The same homes are now asking a selling price of $160,000 to $200,000 in some cases. Also what happened in our market was a huge influx of investors that gobbled up homes while they were less expensive and turned them into rentals.
Today there are many more rentals available than is needed, so rents have either held or have been lowered somewhat. That means that one can rent a fine single family home in the city for what they may have rented for back in 2003, while at the same time property value has sky rocketed up.
Yes, interest rates remain low -- not as low as they were a couple of years back, but still very low in comparison to history. Today may still be a good time to 'buy' because of it, since there is no telling which way the interest rates go in the near future or in longer terms. I simply do not have those answers. But... don't let that fear or emotion get the best of you. Think things out completely.
Let's take the young couple I talked to a couple of weeks back. They said they would be happy with a 3 bed, 2 bath, 2 car garage home in the city and found one on the Internet in Kingman priced at $169,900 in a sub-division called Greater Kingman Addition. I did some work up on an approximate guess at what the mortgage payment might mean to them and came up with a figure of $1,200 for a 30 year loan, with very little money down. I then showed these fine folks a rental list and highlighted a home just two blocks away that basically matched the home they were interested in buying. The monthly rent price is $785, a monthly difference of $415.
They told me they could afford the $1,200 monthly payments no problem, so I sold them the house listed right?? Nope. I offered them this advice, go ahead and rent the property two blocks away for $785, but put the extra $415 they would have been on the hook for in the bank and DO NOT TOUCH IT. After one year they would have socked away $4,980, after 2 years they'd have $9,960 plus interest.
These would be buyers would know two things 1) if the could indeed afford a home at these prices and 2) would be able to put the money saved towards a down payment.
Again, I don't predict the future. I won't know where the average price will be in two years, nor will I know the going interest rate. Heck I won't even guess as to where the price of rentals may be at, but if these would be buyers followed this path they would be able to adjust to any market change that may be coming.
After what we saw this year, sales slumping and prices leveling off.... and what we saw in previous years, an unhealthy rapidly rising property value.... there is no telling what the near future has in store.
For now though, folks that have properties to rent are wildly competitive and that means great terms for renters. And also now we are seeing sellers pricing property just out of reach of many would be buyers. Factor in also that in Kingman there isn't a ton of higher paying jobs at the moment. I believe that will change, no, I hope that will change within a few years. These are the factors that face us today and decisions should be made based on these very factors, not on what might happen.
Some will say things get worse.
Other say things are close to hitting the bottom.
The decision is yours.