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To Rent or To Buy? That Is the Question

While sources may differ about how positive the move in the residential housing market has been, they mostly concur that the worst is behind us and we are in recovery. Last year ended on a positive note, with C.A.R. reporting a 27 percent year-over-year increase in median price, and this year is not off to a bad start, with a January median price of $337,040—24 percent higher than the January 2012 median price.  Home sales made more modest progress, ending 2012 with a one percent year-over-year gain in December.  Due to the constrained supply of inventory, sales declined to 491,720 in January 2013—a 3.9 percent drop from 511,760 a year ago.

Exhibit 1: Median Home Price and Home Sales
Mar012013 mktsnapshotslide1

With the housing market on its way to prosperity again, consumers are contemplating whether it is more beneficial to buy a property now or continue renting. To assist with this decision, C.A.R. has looked at the costs and benefits of renting versus owning property in California and eight of its local regions over a seven year period.  The costs of buying include the monthly mortgage payment, insurance and taxes, and improvements and repairs.  These costs were offset by the benefits of buying: mortgage interest and property tax deductions, and investment appreciation. The costs of renting include the monthly rent payment and renter insurance, which were offset by the benefits of renting: the appreciation on investing the down payment in the stock market.

Exhibit 2: Monthly Savings of Renting vs. Buying
Mar012013 mktsnapshotslide2
For the State of California, consumers can save 32 percent per month by buying a property.  At the local level, buying in the Inland Empire or in Los Angeles County will save you 40 percent per month.  Home buyers in Sacramento will save 34 percent monthly, 15 percent in San Diego, and 12 percent in San Francisco.  However, buying is not the best solution everywhere.  You are better off renting in Orange, Alameda and Santa Clara Counties, with monthly rent savings ranging from seven percent to 11 percent.

For more details on this analysis, visit www.car.org/marketdata.

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