real estate

Buy a home or keep renting?

Steve McLindenQuestionDear Real Estate Adviser,
I am 56 years old, have been renting apartments all my life and am quite comfortable with not doing yard work, not climbing on roofs and not fixing toilets. But is it worthwhile to finally buy a place now, or should I just start researching retirement homes? I don't want to be in the same boat with a lot of folks and become "house poor" due to high mortgage payments each month.
-- J. McDaniel

AnswerDear J.,
First off, I understand your skepticism. Your question really raises a bigger one. That is: Whither the housing market?

We've all been trying to predict the arrival of the housing recovery, but the truth is that the bottom has been a long, deep and slippery one. Every promising piece of news seems followed closely by a discouraging one. Home prices rise for consecutive months … then drop as consumer confidence slides. Sales are up again … but so are foreclosures and foreclosure prices. The economy improves ... but soft job numbers cast doubts.

So I can't say you'd definitely be buying at the absolute bottom of the market if you finally bought a place (and a toilet-repair kit). But I can say you'd be buying lower and at more sensible terms than most -- if not all -- of those "house poor" friends of yours.

Some other things to consider: Rents are creeping up, making buying cheaper than renting in many U.S. cities. (Of course, some of this depends on where you live; Arizona, California and Nevada housing remains dicey.) Lenders are making reasonable "conforming" loans with Fannie Mae or Freddie Mac guarantees now -- but Freddie and Fannie may be clamping down on terms soon. Suffice to say that you won't be offered the same types of outrageous adjustable-rate mortgages or zero-down deals that probably got some of your pals in trouble.

I suspect your retirement-home reference was tongue-in-cheek, given your age. But maintenance is obviously an issue for you now as it is for your fellow baby boomer contemporaries. So let me suggest looking at some "zero lot line" homes that require little yard maintenance. These properties are mostly house-garage. In fact, that old big yard has become a thing of the past in much of the new housing stock. Or for less maintenance, consider a condo, where your dues are applied to landscaping, fixing roofs, etc. However, condo prices remain less stable than single-family home prices and have dropped more precipitously without much recovery, plus their fees and dues can push occupancy costs higher.

You can make that leap to homeownership now, with a solid employment history and good credit. But expect to put down up to 20 percent, depending on your financial history. But before you buy anything, compare your monthly apartment rents with monthly costs of for-sale properties. Make sure you factor in taxes and insurance and tax savings of owning, by the way. If you still plan to buy, study the market thoroughly and feel free to negotiate, negotiate, negotiate. It's hard to insult a seller these days, particularly a distressed one.

Yes, it's hard to say if the time is right for you to buy. Another 5 percent slip in values may be possible. Note that Moody's Analytics believes distressed sales will begin to fall in 2013, causing prices to edge upward again.

But as you no doubt know, there are few absolutes in this world. I can say you likely won't be stranded in that same leaky boat your pals are in because you'd be buying well after the market reset.

Good luck with your decision!

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