Is it Better to Rent or Buy?

One of the most asked questions in a market like this is the question is it better to rent or buy right now in todays market. Hindsight makes this question easy, between 2000 and 2005 it was clearly better to be a buyer. Between 2006 and 2010 for the average person renting would have stopped loss of equity.

The National Association of REALTORS has attempted to answer the question again today.

The cliché says that there has never been a better time to buy.  The hard data in the housing affordability index confirms that.  The affordability index, which takes into account median income, median home price, and mortgage rates, has been bouncing around in the 180 to 200 range since the beginning of this year – the highest reading since the index was first used in 1971.

Read the full analysis by Lawrence Yun, Chief Economist & Senior Vice President, Research

I don’t think this article really deals with all the elements that feed into the decision. SO many are quite intangible, like for example how often do renters move compared to homeowners and what is the combined effect of this on moving costs, closing costs, security deposits etc.

As always with these kind of articles it tends to come to the conclusion that the time is right to buy if you want to and can afford to buy a home.

Is now a good time to buy in Scottsdale?
One other element not covered by the article is locality. Each market is different and saying that nationally it’s a good time to buy is rarely going to be the right answer. The market over the last 5 years has been markedly different in Phoenix Metro area to say Manhattan.

I thought I would do some quick analysis in the MLS to see what the general picture for rent vs buying might be in Scottsdale. This analysis will look at properties listings for sale and for rent in the Arizona MLS. I’m just going to give an example of one zipcode and one number of bedroom / bathroom as an example. I would be happy to provide you a side by side analysis of another area if it’s a decision you are thinking about.

Search Criteria
My search was for single family detached home, in 85260, minimum 3 bedrooms, minimum 2 bathrooms, between 1,800 to 2,200 square feet.

Home To Rent
Current inventory is 14 rentals properties active and available. Most expensive listed at $2,800 per month and cheapest available at $1,695 per month. The average list price for a rental property meeting my search criteria is $2,088 per month.

Home For Sale
Current inventory is 20 homes actively for sale. Highest list price being $609,000 (Note this one property is offered way above the others and did bring the average up.) Lowest list price is $225,000. Average list price for a home for sale meeting the search criteria was $313,900.

Taking these figures above I visited

Using the assuptions, 20% down, 4.8% on a 30 year fixed mortgage the monthly amount came out to only: $1,675.95 that does compare favourably to the average rental price of $2088 per month. The mortgage payment also includes a portion towards debt repayment as well as the interest portion. So for a well qualified buyer it looks to favor buying currently.

I checked how much a mortgage would be if you only had very little to put down. I chose $2088 as this is the same as an average security deposit for a renter, taking one month average rent as normal security. Putting only $2,088 down leads to a mortgage payment of $2,000.68 given the same assumptions. If you don’t have money to put down your options look far less favorable in terms of buying.

So I guess my conclusion would be it is a good time to buy in Scottsdale, you choose the right property and can afford a decent down payment. Wow long post! If you want any side by side analysis conducted for your area just let me know.