In this Market should you Rent or Buy?

The decision to rent or buy used to be a no brainer, but with prices in Southern California up by a third in the past two years affordability is a key factor for many would be buyers. Additionally, the post-crash bargain bin has been picked clean. Given these factors the decision to buy or rent isn’t that simple anymore.
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Despite recent price increases, doubts linger about the health of the housing recovery, and the broader economy. That has a lot of would-be home buyers eyeing the market more carefully. They’re weighing the new higher prices against interest rates still near record lows, deciding between the flexibility of renting and the potential long-term payoff of homeownership. And many are looking at a job market that still feels a little wobbly and wondering whether now is the right time to take the plunge.

All this is one reason why home sales in the Southland fell 10.4% through the first half of the year, according to figures from CoreLogic DataQuick. Even as buyers are shaking off the effects of the recession, they’re confronting prices that are no longer very recessionary at all.
The chief economist at Trulia, Kolko regularly produces a Rent. vs. Buy Index for 100 markets across the U.S., including L.A. Crunching home prices, rents on comparable apartments, interest rates, tax deductions and other factors, he tries to determine the spread between the cost of buying and the cost of renting.

The last time he did, in February, he projected that buying would cost 24% less than renting for the typical household in Los Angeles County over seven years. In Orange County, it would cost 21% less. But, he notes, prices have been climbing faster than rents, and the next time he crunches the numbers, he expects those figures will be smaller.

“The gap [between buying and renting] will continue to narrow,” he said. “It’s already been narrowing.”

Southern California includes many housing markets, from foreclosure belts like Lancaster and San Bernardino — where sale prices remain relatively cheap compared with rent — to high-end areas like San Marino and Newport Beach where seven-figure houses have bounced back from the crash but rents remain relatively modest.

Parts of Southern California are seeing something of a rental boom. In places like downtown Los Angeles and North Hollywood, swanky new apartment buildings are going up left and right, but there’s little supply on the for-sale condo market.

That’s driving up the cost of what condos there are, while all the apartment competition keeps a bit of a lid on rental prices. Still, there’s lots of demand for nicer rentals — even at $2,000 or more a month for a one-bedroom — from young people with good jobs and no particular urgency to buy.

Indeed, even the most likely first-time buyers are holding off.

What are your thoughts on renting vs. buying? We’d like to hear from you!

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