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September 2009

By David Bloom

Home By Any Other Name

Home By Any Other Name

Rent or Own — the Eternal Question

It may lack the rhetorical elegance of “To be, or not to be?” but “Rent or own?” is the question that potential first-time Texas homebuyers must ask themselves. And in times of economic uncertainty, that decision is enough to make anyone a housing Hamlet.

When weighing the pros and cons of purchasing a home, Texans should keep a couple of basic principles in mind: supply and demand and debt to income.

Lots of Housing

Texas’ housing supply has flattened a bit as recession-shy builders pull back, notes Stephen Lipkin, a director at Fannie Mae. But the supply of existing homes throughout Texas remains ample, as evidenced by recent statistics reflecting a higher average number of days on the market before Texas homes are sold.

Yet market demand for Texas houses remains quite strong, particularly compared with that in most other states. The state continues to attract large numbers of new residents seeking its job opportunities and lower cost of living. And while other states have seen abrupt swings from sellers’ to buyers’ markets, Texas’ residential real estate market has held relatively steady.

Similarly, supplies of and demand for rental housing have remained largely in balance throughout Texas, although some developments are offering discounts and other incentives to keep apartments occupied. As with home sales, the rental market benefits from a continuing influx of new Texans, including college students, relocated employees and those who simply prefer nights untroubled by worries about paying for a new roof.

Weighing the Costs

Lipkin says potential buyers must look at the total costs of homeownership – principal, interest, taxes, insurance, and reserves for maintenance. Mortgage lending guidelines are often tighter in a tough economy.

In evaluating a borrower, Lipkin says, lenders look at a number of factors, including income, employment and credit history, delinquencies, loan-to-value ratios, liquid reserves, loan type, property type and the amount of debt involved in relationship to one’s income.

So, homeowner or renter? It all depends on one’s finances and preferences, as well as the housing and rental markets in the community you’re looking to call home. As long as you’re living and working in Texas, how can you go wrong? FN

Why to Buy

Rising home values. According to the Texas Association of Realtors, Texas topped the nation in home price appreciation from March 2008 to March 2009. The value of the average Texas home hasn’t fallen in the past 16 years. The Real Estate Center at Texas A&M reports that home prices appreciated in nearly every Texas city in the first quarter of 2009.

Even so, Texas homes are affordable. The National Association of Realtors Housing Affordability Index (HAI) measures the share of the population that can afford to buy the average home sold in during a specific time period. Texas’ HAI has consistently outpaced the national HAI.

Historically low interest rates. Mortgage interest rates are at their lowest in decades, with Freddie Mac reporting a national average of 5.32 percent for a 30-year fixed-rate loan in July 2009. And lenders are lending. As the National Association of Realtors puts it, “91 percent of buyers in Texas were NOT rejected by lenders in 2008.”

It’s a buyers’ market, and that has a lot of positive effects, from price drops to waived closing costs. But once the market starts to improve, sellers won’t be as likely to negotiate away part of their equity. And with homes staying on the market longer these days, there’s a large inventory for potential buyers. Beggars can’t be choosy, but today’s homebuyers can.

Ready to put down some roots? If you’re planning to stay in the home for five years or so, you may be able to get in near the bottom of the housing market and ride it a lot higher as economic conditions improve.

You’ve got incentives. First-time homebuyers can qualify for an $8,000 federal income tax credit and can obtain $6,000 of it up front, in the form of an interest-free loan from the Texas Department of Housing and Community Affairs. And, of course, the federal government has long made the cost of mortgage interest tax deductible.

Content to Rent

Footloose and mortgage-free? It’s a lot easier to take that job offer in Houston if you’re a renter in Lubbock who doesn’t have to sell a home before making a major career change. Flexibility is always desirable to employers, and a real advantage in a tough job market.

Location or charm you couldn’t afford otherwise. Renting an apartment in a cool downtown building may be within your budget, while a condo across the street might not be.

Yes, renters may hear comments from home-owning friends such as “You’re throwing money down the drain.” But just ask them what they’re paying every month for private mortgage insurance, or how much it cost to replace that roof. And rents are usually a lot lower than mortgage payments, allowing the apartment dweller time to save for a down payment on a dream home.

Not handy? Maintaining a home can be hard. Calling the landlord is easy.

Don’t like yard work in 100-degree heat? Turn up the AC in your apartment, water the spider plant and call it a day!

For more information on buying and renting homes in Texas, see, the Texas Apartment Association, and the Texas A&M Real Estate Center.

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