The latest signs of recovery in the housing market could offer a clear signal if you’re on the fence about whether to buy or rent.
According to the latest reading from the closely-watched S&P/Case-Shiller Index, home prices increased 3.6 percent in the third quarter, the biggest gain in more than two years.
That’s good news for homeowners, who have seen their equity bounce back. It’s no coincidence that foreclosures are at a five-year low, and the number of homeowners who are underwater – owing more on their home than it’s worth – has shrunk.
And with mortgage interest rates at historic lows, more people have been able to refinance and stay in their homes, and more people are buying, which means the supply has tightened.
Renting is still an option, but the recovery in property values means landlords can charge more. And they are. The National Association of Realtors says apartment rents will go up 4.6 percent next year, which would be the fourth straight year of increases. And the trend is expected to continue through 2015.
Throughout the downturn in the housing market, more than a few analysts posed a once-unthinkable question: Is home ownership still worth it? Time magazine generated a lot of buzz with a 2010 cover story, “The Case Against Homeownership.”
And homeownership has seen a decline. The Census Bureau’s official measure of homeownership fell to 65 percent this year, down from 69 percent at the peak of the housing bubble in 2006. A separate analysis found the rate of “real” homeownership – which subtracts homes in foreclosure and mortgages three months or more behind – was 62 percent in the second quarter of this year. The level hasn’t been that low in nearly 50 years.
But it seems now we may have arrived at something of a sweet spot. Home prices have recovered, but not so much that there aren’t still good deals out there. Interest rates remain at rock bottom. And rents are rising.
HLN Money Expert Clark Howard says the combination of these factors, especially the rise in rents, is “the biggest signal you could have to buy.”
“Mortgage rates are the lowest we’re going to see in our lifetime. As long as you’re going to stay in the home for at least five years,” Clark says, now’s the time to pull the trigger on a home purchase.
Of course, homeownership isn’t right for everyone. Depending on the particulars of your finances and other factors, renting could make more sense. Using a rent vs. buy calculator may help you figure it out. Check them out at Bankrate.com and Trulia.com. In addition, Zillow.com offers an analysis of the "breakeven horizon," indicating the point at which buying a house becomes financially smarter than renting the same house.