How can you tell if it’s time to buy your own place or keep paying the landlord?
There has been a lot of mixed information floating around out there concerning the current housing market. Are prices on their way down? Is this making it a good time to buy, or is now becoming renter’s paradise?
Carmen Wong Ulrich, a personal finance blogger for CNBC, has a great little rule you can use to calculate if an area is ripe for the buying.
For example, if you are deciding between renting a 2-bedroom apartment or buying a condo, use the Rule of 15 (not to be confused with the diabetes rule of 15). Now in 4 simple-to-use steps:
1) Find the going rent in the neighborhood or location you’re interested in—which you can track down through sites like Zillow.com and Trulia.com—and calculate how much you’d spend in rent a year. Say, $2,000 a month would mean an annual rent of $24,000.
2) Multiply that number—your annual rent—by 15. (in this case: $360,000)
3) Now look up and compare the going price of a comparable space in the same area, to buy.
4) If that number is much greater than your annual-rent-times-15, the location probably still has a way to go down in home value.
That should be a helpful guideline for getting to know your area. Keep in mind that after being at an all-time high, housing prices are likely to normalize in the next 6 months to a year. This might be a good cue to rent for a while and continue to keep your eye on real estate values.
For some further analysis of rent vs. buy, use this helpful calculator tool from the New York Times. And for some more interesting reading be sure to check out this PDF report from the Center for Economic and Policy Research on ownership vs. rental costs in 100 metropolitan areas. Rent in Pittsburgh is only around $660 a month on average? Impressive.
CNBC On the Money: Buy or Rent? Learn the Rule of 15, July 10, 2008