When to rent and when to buy
August 21, 2009 01:30PM
To rent or buy your home? That was the question on today's CNBC show, "The Call." The Real Deal Founder Amir Korangy went head-to-head with Zillow COO Spencer Rascoff, who argued that now is a good time to buy a home, even though he predicts that the market won't bottom out until next year. "Inventory levels are way up -- there are more homes for buyers to choose from -- and prices are way down," Rascoff said. But Korangy sees things differently, pointing out that a down market is an opportunity to be circumspect about your home buying decisions. "I think it's a great time to scout the properties you're really interested in," Korangy said. "They say homeownership is the American dream, but I think that's as false a claim as Santa Claus ... it's not for everybody."
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Comments
Anonymous
I Always like to get Amir's Perspective on the market! Great Job Amir...! Faye K.
Comment #1 Posted By: Anonymous 08/21/09
Anonymous
"more homes to chose from" sorry, but most distressed sales are crappy subprimes. homebuyers need much better quality homes for what a subprime foreclosure sales for. hence... it's a no brainer to wait till those prime homeowners that are defaulting as we speak go to foreclosure and those much nicer homes go for auctions. it'll take a couple of years more... rent meanwhile.
Comment #2 Posted By: Anonymous 08/21/09
Anonymous
Timing the market may be difficult, but there is reason to worry about missing the bottom. If markets start going back up, buy. It will probably be easier to get financing. However, if you buy before the bottom, then prices rebound in 2 years, you just wasted 2 years cost of capital. If you lay out 500k today, and you could get the same deal in two years, using 5% cost of capital, you just threw away 50k to not miss the bottom. Better to wait. Prices may increase modestly, but it's better than risking losing all of your equity by buying now.
Comment #3 Posted By: Anonymous 08/21/09
Anonymous
#3 clearly you are not in real estate in NYC, we have hit bottom...many, many muliple offer scenarios out there...given that most peope stay in their apartments for 5 to 7 years your 2 year time line is meaningless. If prices increase modestly (your terminology) how do you lose all your equity ? assuming of course you debt level stays constant you only lose your equity if prices decrease, your whole rant makes no sense. Sounds good, but doesn't make sense.
Comment #4 Posted By: Anonymous 08/21/09
Anonymous
raouls.
Comment #5 Posted By: Anonymous 08/21/09
Anonymous
@ #3 - its not about Cost of Capital - its opportunity cost. its the spread between your rental rate and your mortgage rate. if you are buying a home to stay in for a length of time it becomes an analysis of what you could do with the additional money you spend to own v rent. eg. if it costs $2K to rent and $4K to own, what could you do with that $2K per month? if you want to invest, or put the money in a mattress, then fine. but if yu want to secure a place to live that wont have annual rent increases and you plan to stay at the location for a significant period of time, then it make sense to buy. what i love about all this "buy now!", "dont buy yet!" ridiculousness is that youre never wrong because neither situation is wrong. it has to do with the individual desires of each buyer, their financial situation and their future desires.
Comment #6 Posted By: Anonymous 08/21/09
Anonymous
"given that most peope stay in their apartments for 5 to 7 years your 2 year time line is meaningless" - not true; you could still buy in two years and stay for 5 to 7 years thereafter and safe the cost of committing the capital for two years now. My last sentence wasn't clear, I meant you may pay a little more tomorrow if prices rise modestly (optimistic scenario), but this does not outweigh the risk of the market falling and losing most if not all of your equity. Also, there may be multiple offer scenarios, but there are plenty of no offer scenarios too. Also offers don't mean much if the banks won't finance them. Anyway, My point here wasn't to predict the bottom/decline, but to say that if you wait and we already hit bottom, there is little to lose by waiting. Conversely, there's alot to lose by buying if the market does continue to fall.
Comment #7 Posted By: Anonymous 08/21/09
Anonymous
I see your point about rent opportunity cost. I knowingly excluded that because I was extremely lenient on other ownership costs including insurance, maintenance, taxes, legal, etc. BTW, cost of capital is an opportunity cost, and is something that is looked at in ALL financial analysis for any asset in any city. Maybe some of you should learn a little about finance if you are going to pitch home ownership as an investment or as a financial tactic. Securing a place to live is a fallacy, especially in New York where neighborhoods can change so rapidly. There is huge risk in ownership that there isn't in rent. Of course rents can be raised, but I don't foresee that happening for the next one to two years.
Comment #8 Posted By: Anonymous 08/21/09
Anonymous
# 6 is a genius and GO Korangy! nice interview, you told that silly man where the market was!
Comment #9 Posted By: Anonymous 08/21/09
Anonymous
I like Korangy's style. No none sense, just like The Real Deal.
Comment #10 Posted By: Anonymous 08/22/09
Anonymous
I disagree we have hit bottom. What are you basing this on number 3? Just curious bc you seem to know what you are talking about
Comment #11 Posted By: Anonymous 08/22/09
Anonymous
Foreclosures haven't really hit NYC the way they have hit other markets and NYC is always last to feel the effects. The bottom in the city is still not here, but if people think that the bottom is going to be $500 per foot, that's not going to happen.
Comment #12 Posted By: Anonymous 08/23/09