Rent or buy? Officials say ownership is the way to go, and it's the right time for it
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Many peoplee are facing the issue of choosing between renting or buying a home.
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Janesville homeowner Sue Neumann tends to plants outside her duplex. She bought her section of the duplex after looking at many rentals and weighing the cost versus the quality of residence.
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Janesville homeowner Sue Neumann washes dishes in her duplex. She bought her section of the duplex after looking at many rentals and weighing the cost versus the quality of residence.
JANESVILLE — Susan Neumann had lived the American Dream of homeownership.
Neumann had owned homes in Tennessee, but she moved to Wisconsin nine years ago to be near her family. As a renter in Newville, she found herself needing to be even closer to her family in Janesville.
She assumed a new rental unit was in the offing.
But after a conversation with Lori Hagemann Davis—a fellow church member and real estate agent for Century 21 Affiliated—Neumann decided to investigate local homes for sale.
She looked at about 10 houses and ended up buying a condo—"half a duplex" is how she refers to it—on Janesville's west side.
"It's perfect, and for what I'm paying in mortgage I couldn't hardly rent," Neumann said.
Neumann is one of many people taking advantage of what real estate industry observers say is a perfect market: low interest rates combined with an extensive inventory inflated by an economic recession.
The American Dream of home ownership has been tested in recent years as homeowners watched the values of their home investments plummet.
"We've certainly heard that, and at times in recent years it might have made sense in some cases to rent instead of buy," said Rob Keefe, chairman of the Wisconsin Realtors Association's board of directors and president of Keefe and Associates, the parent company of the Lake Geneva-based Keefe Real Estate.
"It's a great time for young families starting out with that first job to buy. Home ownership is still as good a method as any to build wealth in this country.
"The opportunities are remarkable."
That's an expected refrain from someone in the real estate market, said Clark Howard, the nationally syndicated consumer expert who's heard and seen on radio and television stations around the country.
"Real estate agents always say it's a great time to buy, but this time they are right, and the fundamentals are there to support them," Howard said. "The bad news in most housing markets is mostly over.
"Not only is it a great time to buy a property at a ridiculously low price, but you can do it with a loan at a low interest rate."
The local real estate market is rebounding, according to Keefe's association.
Around the state, existing home sales rose 19.5 percent in April, the 10th consecutive month of double-digit sales growth.
In Rock County, April sales were up nearly 23 percent. On a year-to-date basis—2012 versus 2011—local sales were up more than 27 percent.
While the numbers of sales were up, the median prices of those sales dropped about 2.5 percent on both a month-to-month and year-to-date basis.
A flood of distressed properties—foreclosures and bank short sales—forced home prices down.
Statewide, median values increased in April but still are down when compared to last year.
"We're not seeing huge appreciation, but we're starting to see some," Keefe said. "I don't see home prices declining any further, and I really think we'll be back to historical levels in the next five years.
"People have to realize that an asking price based on what a home was worth in 2007 is still not realistic in 2012."
The U.S. Census Bureau reported in April that the rate of U.S. homeownership—65.4 percent—is at its lowest point in 15 years. The rate peaked at 69.2 percent in the fourth quarter of 2004, the high-flying days of the housing boom.
Howard said the bureau's report is a signal that the housing market will recover.
"I think it shows that there's a latent demand for housing that hasn't existed in a long time," Howard said.
Real estate agents share that belief.
Nearly 15,000 of them gathered in May in Washington, D.C., for a "Rally to Protect the American Dream," an event targeting legislators and policymakers on housing issues.
Just last week, TD Bank released a survey indicating that aspirations of homeownership are very much alive. Eighty-four percent of respondents 18 to 34 years old said they want to buy a home. Overall, more than half of those polled said homeownership is a vital component to defining the American Dream.
Keefe said values would improve as local markets clear backlogs of distressed properties.
"Rock County still has a lot of them to work through," he said. "You've got to get them cleared, and once they're off the market, the appreciation will follow."
Keefe said there's evidence that's happening, and inventories are being trimmed.
"As people begin to get back into the market, I think they will be surprised that there's not as much inventory out there as there was the last time they looked," he said.
"There's this perception that there's so much inventory, that you can take your pick, but it is tightening, and I don't think it's going to be a perfect buyers' market forever."
In Janesville, Neumann certainly had plenty of properties to visit.
She nearly pulled the trigger on a larger house with a fenced yard for her dog.
Instead, she bought a smaller place in what she said is a perfect neighborhood. It has a large basement, a nice patio and a tax deduction she wouldn't receive if she had decided to pay more to rent.
"With the larger house, there would have been much more maintenance," she said. "I talked myself out of it, and I decided to downsize.
"I'm so glad I did."
Jul 21, 2012 at 10:17 a.m.
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I still do not subscribe to the news reports that happy days will be the return of higher more unaffordable house prices, they call it home values, I call it price tag. The high prices are what caused the problem to begin with, a myriad of financing schemes people came up with just to make the sale and make it appear people could afford their purchase.
Jul 21, 2012 at 7:20 a.m.
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So which is it? Home prices are down and a good buy right now or home prices are rising according to the news I heard on the radio yesterday in Janesville, which will probably bring your property taxes higher.
Jun 4, 2012 at 6:58 p.m.
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winston,
Location, location, location. There are always good times to buy and sell. The article on balance has too few reasons to suggest owning or renting is the best option.
Basic economics and finance should be required in middle and high school. Too few people do not understand the impact of spending more than you earn or spending foolishly and not saving for the future.
When my wife and I were purchasing our first home - the mortgage banker suggested we borrow much more (18 years ago-because we qualified for more money) but we didn't. The temptation was there-but its not impossible to resist-and it was the responsible decision. Now years later we still live relatively modestly-and we actively choose to not take on debt.
Jun 4, 2012 at 6:35 p.m.
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winston,
Are you saying that all people are powerless and unable to not borrow more than they need? 90% of mortgage holders are not in default-10% (giver or take a few points are in default). If it is as bad you claim-we are in for a housing depression. Are you a mortgage banker or are you hyper exaggerating?
Jun 4, 2012 at 3:04 p.m.
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Ha!
Our last mortgage Lender (of 20+ years) refused to negotiate when we got behind and foreclosed ( even tho we were making monthly payments) We lost this home which is now about $50,000 underwater... looked at buying - renting to own? You have to be in the position to buy with cash before they will talk loan when you are our age... 30 year loan...sure, but we'll be 96 before it's paid off...
Jun 4, 2012 at 1:52 p.m.
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kidlets- true. This is why bought a home when I was 21. Line Doug Mclays(#$#$^%&) pocket for $450 or buy my own for $425 all stuff included.
Sold it two years later and made $$$ a lot if you ask me. Yes times are different but still have equity in my house even thought it has gone down in value.
Jun 4, 2012 at 1:44 p.m.
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So WHAT if you are upside down. This doesn't mean you atop paying your mortgage. You still need a roof over your head!
This is the same case for autoloan. You don't stop making your car payment because you are "upside down".
You sighned the paperwork- pay your loan.
You also knew when you signed up for an ARM(for what reason I will never understand when fixed is usually less) what your payment would be and that it could go up not always down when the term was over. I also know the bank says you can spend so much and it may be much higher than what you can, should, and would afford.
I saw a guy working min wage for years buy a house and payment was over $1000- HOW does this get approved and WHY would you put yourself in this situation. Oh I forgot because they bank said you could afford it. They also had car loans they could also not afford- all repoed and BK, and foreclosed on now.
Jun 4, 2012 at 1:38 p.m.
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We own and our house and our payment is lower than most people who rent. JMO it is better to buy. But thats JMO.
Jun 4, 2012 at 1:12 p.m.
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Responding to your comment DKS:
Why won't they rebound? Well, they could, however we still have some large problems, and the Midwest never saw the insane housing bubble prices that the West and East coasts saw where home "values" increased 500% in a relatively short time, yet even the small hit we took was devastating to many. The mortgage relief bill was a joke, there are still oodles of people underwater on their homes just making the payments through this tough time we've had. I know many people who are making their payments but would love to sell their house, but realize with the decent backlog of "distressed" properties bringing down property values, that they will have to wait, like me. What happens when all of those people put their properties of for sale?
The 08 crash decimates middle class wealth, mostly tied up in homes, the world's largest banks get upwards of 13 trillion dollars to stay solvent, and yet here we are in middle America, left holding the bag?
GM is gone, locally and not returning, Rock county really doesn't have anything else to offer people looking to relocate here, so where is the demand for housing going to come from? We'll be lucky if the housing prices stabilize about where they are now. Maybe in 10 years things might improve, but essentially we've lost over a decade of financial progress with no real hopes of ever returning.
Jun 4, 2012 at 1:05 p.m.
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I would agree with the idea that this article contained too few viewpoints. The question of renting vs. buying is more dependent on individual circumstances than ever. The mortgage payment alone is not the only cost to consider: there are property taxes, maintenance costs, repairs, and other expenses. It's a burden that may not actually be worth it for everyone.
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In particular the equity question is misleading. You don't "need" equity if it's offset by too much risk, as too many homeowners found out (and still are finding out). While home prices have largely returned to a pre-boom trendline, the appreciation is not going to do the same. The idea that a house is an investment or worse a retirement nest egg that you'll be able to cash in is actually a pretty tricky proposition now, especially because people are desperate for any investment that pays anything.
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One thing is true: mortgage rates are at or near historic lows, and in many markets like Janesville, so are home prices. That's an attractive combination. But we have no guarantees this is the bottom. Global markets are still struggling, and the US may head back into recession because of that weakness. If austerity programs continue at the state level, and national budget cutbacks contribute, we would probably see further weakness in home prices over the next several years.
Jun 4, 2012 at 10:28 a.m.
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Bullcrap it's the right time to be owning! Who are these "officials"??? Probably the banks who hold all the money because they've developed a wonderful plan to have compound interest rob you blind. It won't be a good time to buy for another 5-7 years. (maybe)
Jun 4, 2012 at 9:02 a.m.
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Jeez mouse, grow up. This was really a good blog, people were being civil and making intelligent comments. It was actually really interesting to see all sides of this story. Then your post came along. Why don't you go into the other room and let the grownups handle this one.
Jun 4, 2012 at 8:46 a.m.
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They've been pushing the idea of ownership ever since the end of World War II regardless of the economic conditions on the ground. While it can be good, like lower taxes and higher spending, it is hardly universally so.
Jun 4, 2012 at 5:26 a.m.
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I could swing a mortgage payment, and likely all the other expenses involved with buying a home. But, particularly when my wife is currently employed in a position well below her abilities, I am not in a position to commit to one city beyond a one year lease.
Home values dropping or stagnating isn't particularly conducive to investing now. If I'm fortunate enough to sell at the same price I bought, I still have to make enough to cover all the costs involved with buying, then later selling.
That matters less if someone has a stable job and knows they're going to remain in the area for more than 5 years. It is, and will be for some time yet, a buyer's market. Mortgage interest rates are cheap, and you can buy much more home now than 5 years ago.
But there's too much uncertainty in my situation (particularly with my wife underemployed) to consider it. For too many others, that is the reality of their situation as well. This is not conducive to home ownership.
Jun 4, 2012 at 4:57 a.m.
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As was stated, whether it is a good time to buy depends on individual situations. Is your income secure? Do you want to live in janesville until a housing recovery, if any, occurs? If you have a house to sell before you buy at depressed prices (or our 'new normal' prices) then you will probably take an equivalent loss up front when you sell your home.....many people who already own homes at a higher interest rate AND have good credit can't refinance for the new lower loan rates because their homes have fallen in value so much that they no longer have enough equity in their current homes to qualify for a refinance.....the only way they can benefit economically is by selling their current home and buying another home for a lesser price.
Whatever the circumstance people would be well advised to not think of a home as an investment. It is a place to live and as such you should make your decision based on whether you can afford, and would prefer, to live in a residence you own rather then rent. Future prices are a crapshoot, people would be best advised to not count on their home as an investment. Even products that are sold as investments come with this disclaimer "past performance is not a predictor of future results" of course in our current situation that might be a good thing.
Jun 3, 2012 at 9:02 p.m.
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@MrsPotter: Yes, there are individual situations where it might make sense to buy vs. rent. This will always be true. But I speak of the market in general. For most people, unless they can actually, and truly (all factors considered), live more cheaply buying vs. renting, and are willing to commit long-term to a property, and feel that property taxes and insurance won't eat up the savings, and property values will not continue to decline appreciably, etc., etc. etc........then they should rent.
Jun 3, 2012 at 8:55 p.m.
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SuperDave asks "Why would anyone buy in a market where prices are still falling?"
Because they have cash but don't have enough faith in our economic future to leave it in the bank.
Because finding a decent rental house of 3 or more BR is tough in Janesville.
Because prices in Janesville are so much more reasonable than almost anywhere else and it's a nice town.
Because sometimes buying is a better deal than renting (see http://www.nytimes.com/interactive/busin...)
Those are just a few reasons why we recently bought a house in Janesville :)
Jun 3, 2012 at 8:21 p.m.
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"Officials" - Sponsored by the financial institutions. Of course they want you to buy, so when you lose they get it all.
Jun 3, 2012 at 7:51 p.m.
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And btw, for those of you who don't remember gas under a buck/gallon, the nation was pretty much horrified when we first witnessed gas priced at 99.9 - we simply couldn't believe it. Now of course that seems almost free.
Jun 3, 2012 at 7:49 p.m.
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Read the article carefully. Despite the rah-rah tone of the article, home prices overall continue to go down. Why would anyone buy in a market where prices are still falling? This of course may not apply to your individual situation, if you get a deal you get a deal!
That being said, I want to state what should be obvious. Even if the housing market is at or near the bottom (I don't believe it is, there's lots more bloodletting to occur), that fact alone does not imply an inevitable recovery.
Just as gas prices seemed to have reached their peak (for now!), this does not mean we will be seeing 99.9c/gal anytime soon. It could take decades for the housing market to rebound to the government-inflated levels of 2004-2006...or more likely, it may never happen.
Jun 3, 2012 at 6:24 p.m.
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prices seem to leveling off but it's also the home buying season. I am in the market for a country home but will most likely have to wait until fall when the sellers come back. I don't see home prices going up much int the next ten years but hey ya gotta live somewhere.
Jun 3, 2012 at 5:47 p.m.
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lovemycountry - where did I say they are rebounding right now or would be rebounding soon. I said they WILL rebound...maybe not this year, maybe not next year, but they will eventually.
Jun 3, 2012 at 5:26 p.m.
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DwightSchute and other clueless real estate promoters - Just last quarter, there was a record 66 percent increase in foreclosure filings. We are talking about a trillion dollar housing bubble, still in the last stages of deflating. Just last week, there was an article in this very paper about record property tax foreclosures. This all means home prices will continue to go down. Time to buy ? Only if you like being underwater in a mortgage.
Jun 3, 2012 at 5:11 p.m.
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This is misleading. There are many people forced to rent even if they have more than sufficient money to pay a mortgage. Most lenders just want to go off the credit report/score.
Then, you have some people who live on a low income and make a purchase for a $1,000 a month mortgage.
So, before everyone says buying a home is the only want to go, step back and try to understand someone else's situation. Some people REALLY want to own a home, have the money and loyalty to pay for it, but cannot get the loan for whatever reason, sometimes just a typo.
Jun 3, 2012 at 4:36 p.m.
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Why would they not rebound? As the economy improves and jobs increase, the demand for homes will increase. Certainly Janesville may rebound slower than other areas, but there's no reason it won't rebound back to previous levels and beyond.
Jun 3, 2012 at 4:07 p.m.
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I'm sorry, but I don't think housing prices here, or in many other areas will ever "rebound".
This certainly reads like a real estate advertisement.
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