Depreciating Homes Spell Good News for Renters
If you bought at the height of the housing bubble, in areas like Florida and California, you are probably shocked to learn that your house is worth much less now than what you paid for it. For renters, this is very good news. The arguments for owing versus renting have suddenly been turned upside-down as the costs of holding mortgage loans become much more expensive than renting, in some cases. Even while the market becomes more affordable to renters, there’s little incentive to trade in renting for owning just yet, unless you are looking for tax incentives. The biggest benefit to owning your own home is the ability to deduct interest payments on your taxes.
For instance, if you are renting in California, the amount of rent you pay can be far less than the mortgage you would pay for a similar home. The same is not true for places like Seattle, where the rent payments are still high and steadily increasing, but for other places like California, it can make sense to rent instead of buying. If you rent, you should save money on maintenance and taxes paid. If you take the difference you would pay in mortgage versus rent and invest it into some investment that is appreciating, unlike a home, it can make a lot of sense to rent versus own in depreciating home markets. However, if you just use the extra money to increase your quality of life without building wealth through other investment vehicles, then you may be better off finding an affordable home in a down market. Either way, the depreciating market is good news for renters who might be able to swing a down payment now, with lower prices, or can continue to rent and use the difference to fund investment accounts.
June 14th, 2008 at 6:04 pm
The “upside down” scenario has been in place in Central Florida for a few years now - even with recent reductions in house prices, it’s tough to make the ownership economics add up and the rental option looks attractive to many. One major incentive to change from renting to buying will kick in when prices start to rise again.
June 17th, 2008 at 3:04 am
nice article, it is really a good news for renters.
June 18th, 2008 at 7:47 am
This was a good news for those who are planning to rent homes rather than to buy one.
June 28th, 2008 at 2:49 pm
In Florida - say around Orlando - which is cheaper monthly: owning or renting?
Are there still lots of foreclosures?
July 10th, 2008 at 1:47 am
In addition to the good points that you made, we are definitely seeing a decrease in rental prices in Daytona Beach. A townhouse that I rented out for $1250/mo. two years ago, rented for $1100 yesterday. That’s $1,800 a year which should cover most people’s increased gas prices.
Also, please negotiate. In many areas of the country it’s a renter’s market similar to the buyer’s market for buying a home. Look at several places and get an idea of local values, and then negotiate a lower rent. Also, add a cap on rent increases and an option for you to rent for an additional year or more.
You may have better results negotiating with home owners than apartment complexes. Look around, it could save you the cost of recent gas price increases and more.
Lynn Byrne