Tuesday, November 25, 2014

Rent vs Buy - Example

Below is an article on Freddie Mac's blog about renting vs purchasing a home.  The benefits of homeownership help increase net wealth over the long term as seen in the calculations below.  This is a big part of why homeowners have a net wealth 30 times greater than renters on average.  If you are ready, willing, and capable of buying a house, now is the time to do so with low interest rates and home prices.

The $1.5 M Question: Rent vs. Buy? 

Does it make better financial sense for Mike and Jen to rent or buy given their current $1,400 rent payment? How much home can they buy knowing they can afford a $1,400 monthly mortgage payment and can put 5% down at today's rates?

Let's find out using our new calculators with the following criteria:
Mike and Jen's Current Rental Scenario Mike and Jen's Potential Homeownership Scenario
  • Monthly rent = $1,400
  • Monthly renter’s insurance = $10
  • Annual rent increase = 7%
*These inputs will result in a monthly mortgage payment around $1,400
  • Purchase price = $200,000
  • Down payment = 5% ($10,000)
  • Annual property tax = $2,000
  • Annual homeowners insurance = $500
  • Annual home maintenance = $2,000
  • Mortgage rate = 4.5%

We've also put in other assumptions and costs for Mike and Jen, including: a 3% home appreciation rate, a $1,500 origination charge, $1,000 for settlement services, 3% for selling costs, a 33.8% state and federal tax rate, and a savings rate of zero.

You ready? With this scenario, Mike and Jen will save $106,513 by buying instead of renting over a seven year period. If they stay in their home for 15 years, they will save $369,155. Thirty years? $1,592,717.

These figures include costs for Primary Mortgage Insurance (known as PMI) that they will have to pay until they reach a 20% loan to value ratio.

Thursday, October 30, 2014

Average Home Price Changes Since Peak in 2009 - Portland Area

The Oregonian released an article about home prices in the Portland area with an interactive map showing the average change in price from the pre-2009 peak.  In most areas, average prices are still below the July 2009 peak.  Interactive Map

An Uneven Recovery in Portland

The way the numbers tell it, metro home prices are nearly back to where they were at the height of the housing bubble.

But tell that to Dan Gering, who sold his house in Tigard this week – after dropping the price three times. "Everyone around us was saying the market was hot," he said. "I was stunned."

The median-priced home in the Portland area sold for $299,000 in July, according to the Regional Multiple Listing Service. That's just $3,000 short of the August 2007 peak for the area
But median prices don't paint a complete picture. A closer look reveals an uneven recovery, with only a handful of neighborhoods actually seeing higher prices now than at the peak. Those tend to be close-in eastside Portland neighborhoods that had lower home prices during the housing run-up in the first place.

Most suburbs — and some neighborhoods considered among Portland's most desirable — are still seeing homes selling for far less than their peak.