Realtors advise buying if you plan to stay for at least five years

Anecdotally, we all hear stories about young people saying that they are choosing to rent an apartment or home instead of buying a condominium, townhouse or single-family home because they are afraid that we have not yet hit the bottom of the housing market.

The truth, however, according to Mark Brandemuehl, vice president of marketing for movoto.com, a full-service residential real estate search website, is that because of low prices and historically low interest rates, you can actually save thousands of dollars by purchasing a home instead of renting a comparable one. And that doesn't even factor in the old, but still relevant, argument that you reclaim many of the mortgage dollars you pay out when you resell a home, while you reclaim none of the money you pay when you rent.

“Homeownership has many advantages. You can put your savings into the equity of your home and it is a great inflation hedge,” Brandemuehl said. “I tell people: don't buy gold, buy real estate.”

The purchase of a home is also a stable investment that could help your credit rating because you are paying off a long-term debt on a regular basis, he added.

As of Feb. 28, the average two-bedroom home in the Chicago Metro area had a list price of $210,172 and the median list price for those homes was $165,000, Brandemuehl said.

The current average fair market monthly rent for one of those homes is $963. Assuming no market appreciation at all, the monthly cost to own the same property is only $649 (a savings of $314 per month). If you assume a modest market appreciation of two percent annually, the monthly cost to own such a property drops to $366 (a savings of $597 per month over renting), Brandemuehl computed, using the Ginnie Mae calculator.

Those calculations assume a 20 percent down payment; a yearly property tax rate of 1.5 percent; a 30-year fixed rate mortgage at 4.82 percent; and a tenure of 10 years in the home, Brandemuehl stated.

“If you are only planning to stay in an area for a couple of years, then renting makes more sense than buying,” he admitted. “But if you are confident that you are going to live in the home for at least five to ten years, then it makes sense to buy, if you can qualify for a mortgage.”

Mark Tarinelli, broker/owner of Pushpin Realty in Wheaton and one of movoto.com's partner real estate professionals, agreed.

“Today it can be far cheaper to buy than to rent especially with all of the distressed properties out there. This is a fantastic buying opportunity,” Tarinelli said. “Prices on all homes are down significantly and I predict that they will remain flat for awhile.”

For instance, in December he sold for $475,000 a 3,600-square-foot home in Aurora's prestigious Stonebridge Golf Course community that originally listed for $680,000.

He sees improvements on the horizon, however. The last three offers he has put in for clients have been multiple bid situations, so he sees all of the pent-up demand finally pushing people to buy homes.

“I had a transferee who came here last year and he decided to rent for a year because he thought that prices would continue to go down,” Tarinelli said. “Now he has decided he is ready to buy.

“We all know that mortgage rates are inevitably going to go up, so now, when the rates are still low, is the time to buy,” he said.

Martina Jacobson, a Realtor with Koenig and Strey in Glenview, is also a movoto.com partner Realtor.

“The No. 1 question I ask my clients is how long they are planning to stay in a home. If they answer that they will stay at least five or six years, then I tell them it makes sense to buy, not rent,” Jacobson said.

The current rental market in the Chicago area is very hot thanks to those who cannot qualify for a mortgage due to their poor credit rating, poor income-to-debt ratio, lack of a down payment or lack of a secure job, she said.

So rents are climbing while home purchase prices and mortgage interest rates have dropped.

Jacobson has a house on the market in Glenview that lists for $340,000. The fair market rent on that house would be $2,200 per month. But if you put 20 percent down; got a mortgage at 5.25 percent interest; and paid two percent in property taxes, over six years of owning the house you would save $6,961 annually, she said.

Similarly, on a $399,000 house under the same financial conditions, you would save $7,240 per year (over six years) by buying rather than by renting, at a fair market rent of $2,500 per month.

And these computations do not even take into account the various tax credits and other incentives available like the military homebuyer credit, Jacobson added.

“Everything is in line for people to buy right now except their ability to get a mortgage. Qualifying for the mortgage is the problem but if you can get past that, it is best to buy,” she said.

Tarinelli's Pushpin Realty office is located at 121 N. Wesley St., Wheaton, (630) 853-9043, pushpinrealty.com. Jacobson's office is located at 2630 Valor Drive, Glenview, (847) 510-5000, marinajacobsonhomes.com.