Can You Finally Sell Your House?

     Recent reports tell us that the news on home sales is still bad ... but it is apparently getting a little better.

     According to a report from the Associated Press, "In January sales of previously occupied homes reached their highest level in nearly two years, and they have risen more than 13 percent in the past six months."

     The National Association of Realtors agrees, saying that in January sales rose for the third time in four months. The NAR also reports that existing home inventories have been trending down from their record high of 4.04 million in July 2007. Currently home listings stand at 2.31 million units, which is 20 percent below a year ago.

     Lawrence Yun, NAR chief economist, said strong gains in contract activity in recent months show that buyers are responding to favorable market conditions. “The uptrend in home sales is in line with all of the underlying fundamentals – pent-up household formation, record-low mortgage interest rates, bargain home prices, sustained job creation and rising rents.”

     Unfortunately, the average price of an existing home has fallen some 2 percent since last January. And so-called distressed homes -- ones in foreclosure, or short sales -- still comprised 35 percent of January 2012's home sales, down just a hair from 37 percent in January 2011. 
   
     I assume most people in our age bracket are more interested in selling their old home than in buying a new one. But, really, we only want to sell because we want to move ... and many might wonder, if I can sell my old house, should I buy another one, or just rent for a while?

     So let's look at the idea of buying a home from a broader perspective.

     Despite the bust of the last six years, most of us Baby Boomers have probably had good experiences owning our homes over the course of our lives.

     For most of us -- and for our parents as well -- the rationale for owning our own home centered around the American dream, the white picket fence and the friendly neighbors. Owning a home placed you in a community, provided a school system for your kids, and gave your family a stable lifestyle. And in the long run, everyone told us, it was a good financial decision as well. The mortgage was tax deductible; your real-estate taxes were tax deductible; and over the years the value of your house would increase -- some years more than others, but except for a few brief recessionary periods, always on an upward trajectory. The rule of thumb was that is was better to own than to rent, as long as you were going to stay in the place for at least five years.

     But that was then. What about now? Some people argue that owning a home is not all it's cut out to be, that people are better off renting. These days, it seems, people seem more interested in mobility than stability. They want to be able to retire to a warmer, less expensive place. But they can't sell their house. Or they want to be able to move somewhere else to take a better job. But their mortgage is under water. Meanwhile, local taxes keep going up, our utility bills keep going up, and the traffic just keep getting worse.

     I saw a report of a single woman in her early 30s, making a pretty good salary, who wondered if she should buy her own townhouse. But she's worried. Maybe the prices will continue to drop and she'll lose her investment. Maybe she'd be better off putting her savings in the stock market, rather than making a down payment. She wondered why the upfront costs were so high -- not just the down payment, but the mortgage fees and the lawyer's fee and the transfer taxes. And then, even after spending all that, she'll have to pay taxes and insurance and condo fees and maintenance fees.

     On the other hand, she feels like she's "throwing away" over $1000 a month to rent her current place. She's not building any equity; plus, the people in her complex tend to be transient. She admits she'd feel more comfortable if her neighbors stuck around for a while and she could get to know them. She also feels that, while it's nice that she doesn't have to worry about upkeep, the landlord often cuts corners on maintenance with a "quick fix." Plus, she feels like she'd like to "put her own stamp" on a place -- decorate the kitchen the way she'd like it, rather than the way the landlord has it. And she yearns to have walls that have some color to them, instead of the institutional white that's exactly the same no matter what apartment she lives in.

After a decade when it was cheaper to rent (purple) than buy (blue), things have evened out

     This woman does have some decisions to make. We all do. How important it is to to be able to fix up a place the way you want it? And how long do you plan to stay there? Are you going to get married -- or sign up for independent living -- and want to move within the next year or two? Are you settled into a job, or are you going to change jobs, or retire, and to want to move across country next year?

     Above all, the choice of whether to rent or buy is a lifestyle decision. What kind of home and neighborhood you want to live in, and how long are you going to stay there.
   
     The New York Times offers a calculator that compares the costs of renting or buying a home. You plug in the price of the property, along with the taxes and your down payment and your mortgage rate, and compare it to the rent you'd have to pay for the same place. But as with any calculator, you have to make certain assumptions, chiefly about how much the property will appreciate over the years, and how much the rent will rise over the same period. (Who, in 2006, would have entered negative10 percent a year for the expected appreciation?)

     But, to me, any calculation fails to answer an obvious question. How could it possibly be cheaper to rent than to buy? Somebody owns that property. They're not going to rent it to you for less than what it costs them. Sure, there might be a temporary situation, where the owner is stuck, and the renter can take advantage of the situation. But in general, if the owner couldn't rent it for more than what it costs ... why would anyone own it in the first place? You wouldn't do that, any more than you'd take a job where to have to pay to work, rather than get paid to work.

     I did the calculations for my old condo, which I sold in 2007, and which I know now happens to be for rent. If I assume that the value of the property will go up at 2 percent a year, and the rent would increase at the same rate, then the line crosses at the five year mark. If someone is going to move in there and stay for more than five years, it's cheaper to own than to rent.

     In other words, the new rule of thumb isn't any different from the old rule of thumb. But I'd just twist it around. Don't buy a house, or a condo, unless you're going to stay there for at least five years.