Should You Buy or Rent?

Those who are thinking about buying a new home before the home buyer’s tax credit expires this summer should consider whether it is more advantageous to rent for the time being. A crucial figure to consider when transitioning from renter to homeowner is the price-rent ratio, or the figure which compares a city’s median home value with its median yearly rent. At the peak of the housing market five years ago, the national median home price had inflated to close to 21 times the median annual rent. By last summer, however, the ratio had returned to the historical norm of 15, according to Hessam Nadji, managing director of Encino, Calif.-based Marcus & Millichap, a commercial real estate brokerage. If the price-rent ratio in the buyer’s desired neighborhood is 18 or higher, there is a good possibility the market is still in the bubble zone, meaning prices are likely to continue to come down. If the ratio is below 15, however, there is less of a chance that the value will drop and leave the buyer “underwater,” or owing more than the home is worth. | Read More