Rent vs. Buy Question Still Favors Purchasing
August 16th, 2010 categories: Chicago Real Estate News
During the housing boom, no one debated much whether it was better to rent or buy. Because home values were increasing so steadily in Chicago, buying seemed like a great financial move.
Today, though, as housing values fall, the rent vs. buy question has popped up again.
It’s not difficult to understand why. The median value of a home in Chicago stood at $230,000 in the second quarter of 2010, according to the latest numbers from the National Association of REALTORS®. That’s even with the median sales price of the second quarter of 2009, but still a big drop-off from where housing values stood in 2004 and 2005 in the residential boom years.
Today, in fact, home values have fallen so far that many homeowners owe more on their mortgage loans than what their homes are worth. This condition, known as being underwater, is now impacting about 25 percent of homeowners.
Still, even with these troubling numbers, I believe that it makes more sense financially to buy than it does to rent.
And here’s why: Today’s real estate market is an anomaly. It’s a correction from the days in which housing values rose too high too quickly. Historically, homes have appreciated at steady rates over longer periods of time. This means that if you buy a house today, 10 years from now it should be worth significantly more than what you paid for it.
The key to buying a home is to remember that residential real estate was never meant as a way to make quick money. There have been very few markets over the years in which buyers have been able to purchase a home one month, renovate it and then sell It six months later for twice the price.
To make money off residential real estate today, you’ll have to be patient. But history shows that patience pays off when it comes to investing in residential real estate.
Don’t forget, too, that now is a great time to buy a Chicago condominium or single-family home. Homes in even the best Chicago neighborhoods, places like Lakeview, Lincoln Park, Wicker Park and Lincoln Square, can be found at great prices. Buyers can purchase more home today for their dollars. They’ll be in good shape once housing prices start rising again.
Renting does make sense for some people: Those who only plan on living in an area for five years or less, for instance, would do well to rent. People with low credit scores should rent while they take steps to repair their credit.
For people who plan to stay in one place for a long time, though, buying, in my opinion, is still the way to go.
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“Historically, homes have appreciated at steady rates over longer periods of time.” What has the rate of appreciation been in the Chicago market (desirable neighborhoods)? Once adjusted for inflation what has the true ROI on a real estate investment?
Just wondering, thanks.
I was looking for a home to purchase in bronzeville, which is where I live now, and one of your property listings came up. I decided to view the property under your website and I came across Renting vs. Buying (to which I never undestood. I always thought renting was cheaper and easier than buying) until I read your article. I’ve been in this area for more than seven years and would “love” to buy but I have been told that I have no credit. I even have section8 and make almost $47k yearly. But I keep hearing that I have no established credit cause I don’t use credit cards. Could you please advise? I loved the article.