Renting vs. Buying: Home Shoppers Should Plan To Stay Put for a Long Time
Either way, you are betting the ranch.
Today's home buyers face an unenviable choice. Should they rush to buy because mortgage rates are so low? Or should they continue renting because properties are so pricey?
As you grapple with this tough decision, contemplate these three questions.
What if mortgage rates rise? If you postpone buying because you think property prices will plunge, you could be right about the real-estate market -- and still wind up a loser.
To understand why, call up the "rent vs. buy" calculator at
www.dinkytown.net, a Web site of financial tools named after a Minneapolis neighborhood. Suppose you were looking to put down $40,000 on a $200,000 home and borrow the other $160,000 using a 30-year fixed-rate mortgage at 6%. Throw in property taxes at 1.5% of the home's value and insurance and maintenance at 2%, and your after-tax monthly outlay would be $1,282, assuming you are in the 25% tax bracket.
But instead of going through with the deal, let's say you held off, because you feared property prices would tumble. Sure enough, prices slide. Trouble is, the slump was caused by rising interest rates and that drives up mortgage rates from 6% to 8%.
In that scenario, to end up with a smaller monthly house payment, you would need home prices to fall 9%. That sort of decline is relatively rare -- but it isn't unheard of. New England property prices, for instance, tumbled almost 12% during the five years through year end 1994, according to data from home-finance corporation Freddie Mac.
How long will you stay put? Despite the risk of higher mortgage rates, let's assume you continue renting.
That means you can invest the money you had earmarked for a house down payment. In addition, renting rather than owning may mean a smaller monthly outlay, and that will give you additional money to sock away.
You would likely stash this cash in conservative investments, so the money will be safe until you get around to buying a house. These conservative investments might give you an after-tax return of 1% or 2%.
If you then head back to the Dinkytown calculator and plug in 1% or 2% as your after-tax investment return, you will get a seemingly bizarre result. The calculator suggests that renting makes sense only if you plan to move again within the next two or three years. Yet the standard advice is that you shouldn't buy a house unless you are confident of staying put for at least five to seven years.
What's going on here? The short break-even period is partly driven by today's rock-bottom mortgage rates. But the real problem is we're making an apples-to-oranges comparison. If you continue renting and stuff your cash in a money-market fund, you will have a low-risk investment with a correspondingly low return.
By contrast, if you borrow a truckload of money to purchase a house, "you're buying an idiosyncratic, incredibly risky investment," argues Chris Mayer , director of the Milstein Center for Real Estate at Columbia University. "There's a lot of risk in one house."
If everything goes right, this risk will be richly rewarded and buying will be far more lucrative than renting. But what if things go wrong? During the past five years, property prices have outpaced inflation by five percentage points a year, compared with a 30-year average of 1.4 percentage points.
That doesn't mean prices are about to crash. But after the recent heady gains, that is clearly a possibility -- which is why the standard advice makes a ton of sense and you probably shouldn't buy unless you plan to stick around for at least five to seven years.
How risky is your local housing market? As you apply this standard advice, take into account the state of your local housing market. To that end, Prof. Mayer suggests categorizing real-estate markets the way investors categorize stocks.
"Think of San Francisco and New York as growth stocks," he says. "And think of Houston as an income stock. In Houston, you get a lot of your return from current consumption and less in appreciation. And in San Francisco and New York, you get less in current consumption and more in appreciation."
As Prof. Mayer sees it, buying in Houston is less risky, partly because prices are less volatile and partly because you get a lot of house for your money, and thus a big part of your return takes the form of "imputed rent." Indeed, in an "income" market -- which is what you typically find once you get away from the big urban areas on the two coasts -- you can buy a house and be fairly confident of coming out ahead, even if your time horizon is just five years.
Meanwhile, if you live in a "growth" market like Boston, Denver, Los Angeles, New York, San Diego, San Francisco or Seattle, you should probably be more cautious, buying only if you intend to stay put for at least seven years and preferably longer. Like low-dividend stocks, home prices in these markets will tend to be more volatile. That means there is a greater risk you will get caught in a real-estate downdraft that temporarily wipes out your home equity.
On the other hand, if you plan to stick around for a long time, buying in a growth market can be a smart move, Prof. Mayer says. His reasoning: Because property prices are expected to climb at a decent clip over the long haul, there is an advantage to buying today and locking in your housing costs.
房屋购买者应有长期居住的打算
不管选择何种做法，你都是在豪赌。
如今，房屋购买者面临一个并不令人羡慕的选择。他们究竟是应该在抵押贷款利率很低的情况下，争先恐后地购房呢？还是考虑到地产价格如此昂贵，而选择继续租房呢？
如果你正因为这个艰难的决定而寝食不安，不妨思考以下三个问题。
一、如果抵押贷款利率上升，情况会怎样？
如果你因为对地产价格看跌而选择延期买房，你可能会是得出了正确的判断，但同样，你也可能成为一个失败者。
要明白为什么，不妨向ww.dinkytown.net上的计算工具求教，这是一家以明尼阿波利斯一个社区命名的金融工具网站。假定你正准备购买一处总价200,000美元的房子，首付40,000美元，以6%的固定抵押贷款利率借入30年期160,000美元的贷款。除了交纳相当于房屋总价1.5%的地产税，相当于房子总价2%的保险和维修费外，你每月税后的月供将是1,282美元（假定你所得税的税率是25%）。
但是，如果不签约购房，情况怎样呢？假定你因为害怕地产价格下跌而推迟了购买房子。房地产价格肯定会下跌。但问题是：房地产价格的下跌是由于利率上升引起的，而利率上升却导致抵押贷款利率从6%上涨到8%。
在这种情况下，要想每月的月供少一点，你需要让房屋价格下降9%。房价下降相对来说罕见，但也绝非没有。据房屋信贷公司联邦住房贷款抵押公司(Freddie Mac)的统计，在截至1994年的5年内，新英格兰地区(New England)的地产价格下跌了将近12%。
二、你打算在新买的房子里住多久？
尽管抵押贷款利率有上升的风险，但是不妨让我们看一下继续租房的情况。
继续租房意味著你可以将自己为房子首付准备的钱用于投资。另外，租房而不是买房也许意味著你每月的支出可能会少点，这将让你有更多的钱用于投资。
你很可能将这部份现金投到保守性的投资工具上，因此这笔钱在你拿出来买房之前将非常安全。那些保守性的投资工具可能给你带来1%或2%的税后收益。
如果你再次求助Dinkytown上的计算工具，将1%或2%的税后投资收益输入进去，你将发现自己得到一个看上去有点不可思议的结果。计算工具建议你：只有当你在未来的2到3年内有再次搬家的打算时，继续租房才比较合理。而计算工具标准的建议是：除非你确信自己在新买的房子里至少要居住5到7年，否则你就不应该买房子。
这究竟是怎么回事？现在，得失平衡的期限变得如此之短，部份原因是由于如今处于底部的抵押贷款利率造成的。但真正的问题是：我们在拿不相干的两件事情来比较。如果你继续租房，并将现金投入到货币市场基金上，那么你属于进行低风险的投资而获得相应的低回报率。
与此截然不同的是，如果你贷上一大笔款项，用于购买房屋，那么，你购买的是一种特殊商品，属于风险很高的投资。哥伦比亚大学(Columbia University)米尔斯坦房地产研究中心的主管克里斯?梅耶(Chris Mayer)表示，购买房子有很高的风险。
如果一切正常的话，这种购房的风险将得到丰厚的回报，将远远比租房划算得多。但如果出现问题，情况如何呢？在过去的五年中，地产价格每年上涨的幅度超出通货膨胀率5个百分点，而30年的平均水平仅高1.4个百分点。
这并不意味著房屋价格将要下跌。但是，在经过最近几年的上涨之后，显然有价格下跌的可能性。这也就是为什么计算器标准的建议是：你最好不要买房，除非你打算在这里至少住5到7年。
三、你当地的房地产市场究竟有多少风险？
当你采用上述标准建议的时候，你应该考虑到你当地房地产市场的状况。为了做到这一点，梅耶教授建议像投资者划分股票那样给房地产市场分类。
梅耶教授表示，可以将旧金山和纽约看作成长股，将休斯顿看作收益股。在休斯顿，能够从当前的消费中获得较大的收益，但升值潜力不大；而在旧金山和纽约，你从当前的消费中获得的收益很少，但升值潜力巨大。
在梅耶教授看来，在休斯顿买房风险很小，部份原因是休斯顿的房价波动不大，另外的原因是：你的钱能买到很大的房子，你收益中一大部份会以“估算租金”的形式体现出来。的确，在一个“收益型”市场上（一旦你离开东西海岸的大城市，你通常都会找到这类“收益型”的市场），你可以买一处房子，并对未来的前景相当有信心，即便你预期居住的时间只有5年。
然而，如果你的居住地属于一个“成长型”的市场，比如波士顿、丹佛、洛杉矶、纽约、圣地牙哥、旧金山或西雅图，那么，你应该更谨慎一点，除非你打算居住7年以上，或者更久，你才买房子。像那些股息很少的股票一样，在这些市场上的房屋价格将更容易波动。这就是说，你的风险更大，有可能在下跌的房地产市场上套牢，从而暂时遭受房产的损失。
但梅耶教授表示，另一方面，如果你打算居住很长时间，那么在一个“成长型”的市场上购买房屋将是明智之举。他的理由是：由于从长期来看，地产价格是预期要攀升一大截的，所以立即购买房屋从而锁定住房成本是有好处的。
