To rent or to buy? What is the answer to this perplexing question? Well … it all depends!
If you are looking for a place to stay while your home is renovated or you have recently moved from out of state and need to get to know the neighborhoods, then a rental makes sense.
If you have not been able to save for the large down payment, usually 20 to 30 percent, or you need to polish up your credit score, it makes sense to rent. And if you are not sure if you will be living in the area for a prolonged period, again it makes sense to rent.
But what should you do if you do not have those constraints and are thinking about buying or renting?
According to Jeffrey Otteau, of the Otteau Valuation Group, which provides real estate analysis and information to realtors and others, the longer you plan to stay in a home the more beneficial buying will be. Since 1971 house prices across New Jersey have risen by an average 4.8 percent each year. Even with ups and downs of the more recent years home prices have increased by an average 4.6 percent each year since 2000 to date.
At the same time rental prices are rising as demand increases particularly amongst younger people. Otteau suggests that rental prices will increase by four percent each year and that vacancy rates will shrink even more. New Jersey already has one of the lowest vacancy rates in the country.
Using a specific example of a buyer spending $400,000 on a new home with a 10 percent down payment and a 5 percent mortgage (conventional 30 year mortgage) and taking into account homeowner expenses including property taxes, mortgage and insurance payments and tax savings Otteau calculated that over a 10 year period the gains to a homeowner from buying would be between $103,403 to $277,310 depending on the rate of annual price appreciation.
Take into account that mortgage rates are still low and homes are more affordable than in recent years. Also consider that homes in Morris County rose by five percent in the last quarter of 2010, and here in Chatham we have seen a strong market in the first quarter of this year. If you plan to make a home in our community for some years then you will be better off by buying.