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
August 21st, 2008 at 10:44 am
Yes in today’s scenario it is advisable to live in a rented house rather buying one. Rented houses are sounding more cheap and you can save money also. Moreover you can also negotiate with home owners and look for low rented areas.
August 21st, 2008 at 2:17 pm
That was good to hear for renter in Florida and California.
August 24th, 2008 at 10:20 am
This is good news for the renters then, most renters are lower class people and college students. But ofcourse this is bad for the people making money off renting business, and they will be discourage to continue and might sell the houses. So there is two sides to the coins.
August 25th, 2008 at 9:46 am
Indian market is witnessing a slightly similar condition…
Prices are slowly getting corrected for metros like Delhi…but so far, there is no sign of rents being cut down…
August 26th, 2008 at 1:08 am
Rental is the way forward for many here in London. Many are aving for an increased deposit and waiting for the right financial conditions.
August 27th, 2008 at 5:34 pm
One of the problems with the mortgage crisis is that consumers did not and still do not understand their loans. Educating the public about the mortgage industry is important for everyone.
September 10th, 2008 at 2:15 pm
I have always been a strong advocate for ownership, until now!
I see no reason to become an owner for the forseeable future.
The Government has done nothing to stem the tide of bank failure. The market has the highest inventory of unsold properties ever. The economy in general is in the tank. Energy costs are just off their recent highs….’
Nope, I see no reason to own anything right now except cash!
Rent for 3 to 5 years and then buy if you see things change; but right now I can’t even see a firm bottom!
Just my thoughts:)
September 21st, 2008 at 9:54 pm
Although the housing market is taking a hit this is an excellent time to be buying, prices are cheap and because people are finding it harder to get a morgage more people are turning to renting.
September 22nd, 2008 at 7:02 am
nice article, it is really useful for renters.
October 10th, 2008 at 2:07 pm
Are things in Florida as bad as they make out in the news or is it a myth that prices are in free fall?
October 13th, 2008 at 5:34 am
A very useful information for renters. Nice article.
October 13th, 2008 at 4:09 pm
The cost of renting is getting reasonable in many markets right now. I know people who would rather pay cheap rent than buy right now
October 21st, 2008 at 7:16 am
Real estate will always have its ups and downs. Whilst there’s no denying that the situation in Florida has become bad for home owners, I believe that natural recovery will soon take place, like it always does.
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October 25th, 2008 at 6:10 pm
I agree that going this way is beneficial IF the renter is saving the extra money for some investments. People should take this into consideration in making decision whether to rent or to buy. There are some that would rather own their own homes because it makes them feel good.
October 30th, 2008 at 5:40 pm
I am surprise to see rental income go down in some areas in this part of the property cycle. With all the distressed property owners selling, there should be an increase in rental income. That’s what is happening in South Africa at the moment.
This is one of the best times for renters to get on the property ladder. You will be able to get bargains out there. It is a buyers market now with property seller highly negotiable on price.
November 20th, 2008 at 12:50 am
There is a program in place for homeowners that are upside down on their mortgage called Hope 4 Homeowners. The program essentially reduces the principal balance on the mortgage to 90% of the current value of the home. This reduces the monthly mortgage payment and also takes the homeowner out of the upside down scenario. This may help for many homeowners that find themselves in this position. I am sure that there will be many more programs like this as the problems with home values continue to build. Keep up all the great work on your blog. I have added this blog to my google bookmarks and I will be sure to come back soon.
December 1st, 2008 at 5:30 pm
Yes? Do users recommend it ?
December 3rd, 2008 at 11:20 am
Thanks for the nice post.It is really a good news for renters .
December 3rd, 2008 at 9:26 pm
I live in a college town, so rents tend to be high and the housing market is fairly stable. Still, I’m hoping to take advantage of a good deal when I buy my home (in a year or so).
December 17th, 2008 at 8:44 pm
As a Realtor in Colorado I find that this is true for several areas around metro Denver. In one specific neighborhood, Castle Pines North, CO, rental rates are lower than the monthly payment for an individual putting 20% down when they purchase a home. Sellers who have already purchased another home but not yet sold their existing home are choosing to rent at a low rate instead of reducing their sales price. The Sellers would rather lose $200 a month in cash flow through a rental then have to discount their sales price $20,000 to sell the home in this slower market. The Sellers hope is that the real estate market will turn around in 2-3 years so they don’t lose any equity. This is creating great rental opportunities for renters. You can read more about the Castle Pines North market at http://www.alldenverrealestate.com/blog/castle-pines-north-2/
December 18th, 2008 at 2:30 pm
Yeah those lucky renters)) good time for them …
Greetings from Spain.