Buying a Home: Always the Right Move?

“You ought to buy a house.”

Most young adults have heard this advice.

Stop renting, the message goes. Take out a home mortgage and you can build equity in a home or condo instead of throwing money away by paying rent.

Some groups have urged caution, however.

The National Multi Housing Council in Washington, a trade association of apartment firms, among other groups, argue that the monthly expenses involved with owning a home can exceed the cost of renting.

Especially when factoring in items such as closing costs, maintenance, property taxes, homeowner’s insurance and the interest expense on the mortgages people must take out.

Nearly one-third of all homeowners move within five years, the council said, before they start building any real home equity in their real estate. In cases like those - and even longer term - putting money into the stock market instead of into a house could provide superior returns.

“There is a myth that people just assume buying a home is better than renting,” said Kristy Lamb, a regional property manager for NP Dodge Management Co. in Omaha, Neb.

“People don’t always consider that the first five years of (mortgage) payout are going into interest.”

People who decide an apartment works best for them might enjoy not having to mow the lawn, shovel the snow, fix a leaky faucet or repair a damaged roof, Lamb said.

“There is also a convenience to renting,” Lamb said. “People don’t realize how handy it is.”

Don and Ozzie Nogg are spending their retirement years in a downtown Omaha apartment. Nogg said he believes in home ownership, but as retirees with four adult children it was time for a move to smaller quarters.

For the last 14 years, their apartment complex provided free maintenance. While he hadn’t worked out all the details to know for certain, paying rent might be less than having a home loan, Nogg said.

College students and people getting started in the job market can benefit from renting, said Randy Lenhoff, president of property management and development firm Seldin Co. in Omaha.

“If you get a job transfer, it is much easier to move, even with a lease,” Lenhoff said. Selling a house can take a while, he said.

Jennifer Rose, 27, has been living at Harrison Hills Apartments in La Vista since 2003. She spends $955 a month for a large, two-bedroom apartment in a complex that has two outdoor pools and a hot tub, a game room and lounge, a party room and a two-lane bowling alley.

Being surrounded by people provides security, maintenance is free and the social aspects are wonderful, Rose said.

“I like the carefree lifestyle it gives me,” she said.

Rose said she thinks about the money she could be putting into a house, but “it’s not the right time of my life right now.”

That probably will change when she gets married, Rose said.

Houses don’t always increase in value, as can be seen in the recent housing market slump, said Mark Obrinsky, chief economist and vice president of research for the National Multi Housing Council.

The New York Times published an analysis last month that compared buying with renting in major metropolitan areas.

The newspaper found that in much of the U.S., particularly the Northeast, parts of the Southwest, California and Florida, recent home buyers with mortgage loans faced higher monthly costs than renters and lost money on investments.

High-cost markets like California have been hit particularly hard in the recent housing slump. Low-cost markets like Omaha and Lincoln, Neb., have been less affected, experts have said.

“I don’t see real estate taking a dive in the Midwest,” said Larry Melichar, the president and chief executive of CBSHome Real Estate in Omaha. “I haven’t seen any year where values went down.”

Regardless of where you live, the first five years of mortgage payments typically go toward the loan’s interest, NP Dodge’s Lamb said.

Money that people use to pay the mortgage could be invested in stocks and probably bring a higher return, Lamb said.

Others argue that building equity remains a valid reason for buying a home. There are tax advantages to buying a house as well, including itemized deductions for property taxes and the interest paid on a home mortgage loan.

The gain from selling a home can be tax free, up to $250,000 for people who are single and double that for couples.

Buying a home supports an asset that can pay off when the home is resold, said Jerry Dantzler, program director of Omaha 100 Inc., which offers Nebraska mortgage loans for people with low to moderate incomes.

“You’re paying the bank, but you’re building up equity in your house,” Dantzler said. “In the last eight to 10 years, homes have appreciated.”

People who pay off their mortgages and own their homes have fewer expenses in retirement, said Melichar of CBS Home Real Estate. “If you’re renting, you’ll be paying rent your whole life.”

Obrinsky and others said the choice of buying a home or renting an apartment goes beyond dollars and cents.

“Buying and renting is not only, and perhaps not even primarily, a financial decision,” Obrinsky said. “It’s a lifestyle decision.”

Twenty years ago people tended to think of apartments as places where people with less income lived, Obrinsky said.

Over the last 15 years apartments have been attracting a wide variety of renters by adding amenities such as luxurious kitchens, lavish courtyards and intricate woodwork, he said.

In addition, many young people have come back to city centers, but they can’t always afford houses near downtown areas, or they want to remain mobile, Obrinsky said.

“You shouldn’t rule out an apartment,” Obrinsky said. “You should consider whether an apartment meets your needs.”

Keep this in mind before you dial up your mortgage broker.

SOURCE: Omaha World-Herald