4/5/2013 - Five cities where renting is often preferable to buying
With home values on the rise and mortgage rates at historic lows, many real estate experts agree that there's never been a better time for individuals who've been considering purchasing a home to finally make that move. However, in a considerable number of metropolitan areas, it may be in consumers' best interest to rent, due to market conditions and the cost of living.
With this in mind, real estate information website Zillow says there are at least five cities where renting is preferable to owning.
New York City is perhaps the best city where renting or subletting may be ideal. That's because the median home price for the metro area is approximately $450,000, which can be out of many people's price range. Even after several years of ownership, buyers may not see any gains on their investment due to how expensive listing prices can be. Zillow notes that while the $900-$1,200 price range may be high as well, it's a bigger bargain than purchasing when all is said and done.
Another city where renting is preferable is Los Angeles. Even though rents average as much as 30% more than the national norm, home prices are 200% higher than the national rate for single-family residences, Zillow points out.
On the opposite end of the country, Boston home prices are similarly structured. Zillow notes that the median home price in Massachusetts' largest city is 80% north of the national average at $363,700. While the rent average in Beantown is also steep at $2,000, renters win in the end when it comes to considering all the incidental expenses that come with homeownership.
The two other cities where Zillow suggests homebuyers may want to reconsider purchasing in, until market conditions change are San Francisco and Honolulu.
Moving soon? Renting may be better option
But price isn't the only thing Americans ought to take into consideration when deciding about renting versus owning. A key factor to weigh is how long they intend to stay in a given region. For example, if planning on moving within the next five years, renting may ultimately be the better option, especially for people whose jobs require them to travel extensively, real estate experts say.
The health of a prospective buyer's credit profile is an additional factor to consider before purchasing or renting a property. While creditworthiness is used by landlords, it's an even bigger factor that lenders take under advisement, as the National Consumer Protection Bureau has released new rules regarding what lenders need to satisfy before they can approve a mortgage request that's government-backed.
Plus, there are a considerable number of apartment and condominium complexes that have either recently been completed or will be soon, which may help reduce average rental costs. According to a recent report issued by the National Association of Builders, the increasing supply levels could help ease renters' concerns about finding a place that's within their price range.
"The apartment and condo markets continue to improve as new household formations generate demand," said David Crowe, chief economist for NAHB.
The trade association indicates that there will likely be a 30% uptick in rental unit construction projects in 2013.
Large cities are traditionally renters' territory. Data from the U.S. Census Bureau reveals that renters actually outnumber homeowners, with as many as 69% of households being rented in New York City. More than 50% of cities' residents are renters in Chicago, Houston and L.A. as well.
However, renters are often not insured. According to the Insurance Information Institute, less than one-third of all individuals who lease their properties have renters insurance.
"Renters insurance provides financial protection against the loss or destruction of your possessions when you rent a house or apartment," said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the III. "While your landlord may be sympathetic if you experience a burglary or a fire, your possessions are not covered by your landlord's insurance."
The average renter's policy is between $150 and $200, according to data from the National Association of Insurance Commissioners.