Buy vs. rent? The rules are changing…again
02/13/2014 3:15 PM
02/13/2014 3:16 PM
For years, national real estate experts advised prospective buyers that they should plan to remain in a home for at least five years. Staying that long would improve the odds that buyers would break even or make money when they sold. Those who planned to remain for shorter periods might be better off renting.
I heard the same rule of thumb from local real estate pros.
That has changed: Beth Pinsker, who writes the Your Money column for Reuters, says most online buy vs. rent calculators these days use a period of seven years. She points out that Trulia economist Jed Kolko says the period is about 8 1/2 years. And that national real estate columnist Ilyce Glink thinks it’s 10 years.
Ten years is a long time.
Pat Riley of the Allen Tate Company thinks that’s, well, “crazy.”
Also, he said, home appreciation is likely to return to historic norms, which means the old advice might someday be new again.
The five-year rule was always broad-stroke advice, of course. Whether your home will appreciate enough to cover sales costs is a simple question with lots of complicated answers. Remaining in a home five years, or even 10, is no guarantee that you’ll have lots of equity when you sell. It’s another important question to consider when you’re debating whether to buy, but not the only one.
Riley, president of the firm that owns Allen Tate Realty and related companies, said that for years following World War II, the average home appreciated 2.5 to 3 percent a year. All markets are local, but that was the trend.
He said that consistent appreciation, and a growing larger economy, allowed the average family to move every four to six years. That’s when the five-year advice came along. More recently, with plunging home values and the uncertain jobs picture, the average family moves only every nine years. “It’s …the longest time between purchases,” Riley said.
Riley expects that average appreciation to return to historic and stable levels.
Last year, as home prices rebounded, appreciation was 9 percent. That’s clearly not sustainable. This year, it’s expected to be 5 to 6 percent. But Riley said it’s heading back toward 2.5 to 3 percent per year.
Boomers will continue to downsize, he said, and millennials who have been carrying student debt will start buying in earnest. “Millennials are going to start marrying ... and we’ll see growth in households.” Families will move more often.
“To me, that 9 is going to crash,” he said. “That 9 is going to go back to 5.”
About Allen Norwood
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