Take the Money and Rent
What's always stopped me and my husband cold when we thought about selling chez Harris has been one question: where would we go next? Our real estate agent and her colleagues, when they visited to assess our ramshackle manse in suburban Connecticut, were quick to suggest that we betake ourselves directly to Manhattan. While searching for just the right space, we could rent. "Rents have really come down," they sang, almost in a chorus.
A somewhat chi-chi 1-bath 446-square-foot studio apartment, it turns out, might run $2,800 a month, not including utilities, insurance or parking. That's about 10% more than we're paying for a 2,200-square-foot house, including taxes, insurance and parking--plus a big basement and one-acre of crabgrass. Rents in New York may have come down, but, know what? They're still outrageous.
And, if you were raised by parents like mine, renting is anathema. Along with advice to look both ways before crossing the street and to chew with your mouth closed, your mom and dad warned that you would never get ahead in life forking money over to a landlord.
Right now, that guidance looks truer than ever. Mortgage rates are way down to about 4.6%, and many housing markets are glutted with properties. Credit Suisse put it all together and found that the percentage of median household income needed to pay the mortgage on a median-priced house is at a 30-year low.
But in many cities, renting now may be a better deal than buying. Trulia.com, the real estate website, recently launched a rent vs. buy index. Among the cities where renting makes more sense: Philadelphia, Denver, Dallas, Cleveland, San Diego, Kansas City (Mo.), San Francisco, Portland (Ore.), Seattle, and, yes, New York City. In those metros, prices are still so high that they aren't offset by bargain-basement mortgage rates--which presumably would result in lower monthly costs for buyers. So our real estate agents' advice to rent while waiting to buy may be solid. Especially when you put it together with some pearls of insight from John Marecki, veep at Prommis Solutions, a company that processes foreclosures for mortgage servicers. Because foreclosure moratoriums have mostly expired and borrowers are redefaulting on modified loans, he says, banks are going to have to suck it up, foreclose and put the properties back on the market at lower prices. The upshot: further price drops and a larger inventory of unsold properties.
That leaves sellers who want to get into a less costly rental with a major problem: unloading the dwelling they're in. It's hard to take the money and rent, if the money can't be had.