The San Jose CPA is advising to base the rent vs buy decision on a simple formula of dividing the home price with the annual rent and then checking if the result is less than15
Indian housing has to deal with 2 other negative factors as opposed to the US. Mortgage rates are two times US rates and there is 40% black money angle to properties in Mumbai. Both these factors affect the affordability of housing for the salaried employee. Add to that the US has a tax credit of $8,000, if the house is bought before Dec 1st, 2009.
On the NRI H-1b perspective immigration backlogs prevent anyone taking a house purchase risk as any layoff can kill the home ownership dream in a second.
All this goes to say that the US government does far greater things to facilitate an easier lifestyle for its citizens and permanent residents. Motivated people all over the world work equally hard but the US and western countries provide its citizens an affordable high quality of life which only citizens of developing countries can dream of.
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With housing prices down significantly in many parts of the country and interest rates low, it may be an affordable time for twentysomethings to buy that first home.
In some instances, the price of owning can be comparable to renting in the long run. But a lot of uncertainty still remains about the housing market and the economy -- making the decision to buy more complicated.
Nicole Stivers, a 24-year-old who works in public relations in Contra Costa County, Calif., purchased her first home with her fiancé in February. They were able to capitalize on what she calls a "perfect storm" -- job stability, a desire to settle down, a surge in home foreclosures and the $8,000 tax credit for first-time buyers.
Still, the move was not without its concerns. "Would we be able to afford this if we both lost our jobs? Do we have enough for a down payment? Do I have enough for moving? It's really nerve-racking when you're first doing it," says Ms. Stivers.
Here are some questions to consider when deciding if buying or renting is the right choice for you:
How long do you plan to stay in your home? "There are high transaction costs associated with buying and selling" a house, says Dean Baker, co-director at the Center for Economic and Policy Research, so home buyers should plan to stay put for at least four to five years.
The reasoning? The costs for buying and then selling a home -- which can include a real-estate agent's fee, a transfer fee, closing costs, and inspector and surveyor fees -- could add up to about 10% of the sale price, or roughly 1½ years worth of rent. "If you average that over 10 years, it is not that big a deal," says Mr. Baker. "But if you average it over, say two years, you're paying an awful lot of money to own a house for a short period of time."
Can you handle the monthly expense? While a monthly mortgage payment may be comparable in some cases to a monthly rent, there are other expenses to consider.
To get a feel for the financial burden you'll be taking on -- and to see if you can handle it -- "practice" making payments. Each month, set aside projected mortgage and property-tax payments, maintenance costs, utilities and any other home-related expenses into a separate savings account, says Gary Smola, a certified financial planner with financial-educational firm Financial Finesse.
What's the price-to-rent ratio? Home prices have come down significantly in some areas of the country, but "nobody knows what tomorrow's going to bring in the housing market," says Daniel Morris, a certified public accountant in San Jose, Calif.
To determine whether it makes more financial sense to buy or rent in your area, compare home sales prices with the cost of renting a similar place.
Divide the price of the home by the total cost of rent for one year. If the result is more than 20, "I'd be very concerned that the price [of the home] might fall more," says Mr. Baker, and you should consider waiting to buy. If it's 15 or below, he says, "you're probably reasonably safe" with prices holding steady or growing.
What is your job and relationship status? Twentysomethings are still getting a grasp on their futures and a constantly changing lifestyle might require the flexibility of renting.
But "if your career stability is strong, you are comfortable doing what you're doing … and you are committed in some form to your lifestyle," Mr. Morris says, buying a home becomes a more attractive option.
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