Buying vs. Renting

In many areas, monthly payments can be around the same

01/31/2017

Buying vs Renting

When Bill Brace’s daughter Claire told him she was planning to rent an apartment, he had just one question: “Why do you want to rent in a market like this?”

Instead, Bill, who is a sales agent with Coldwell Banker Residential Brokerage, suggested they head over to the neighborhood bank and get Claire pre-approved for a mortgage so she could buy instead of rent. Today she’s the proud owner of a two-bedroom starter home in West Bend that she purchased for $94,000. Her monthly payment: $635.

Claire has lots of company when it comes to homeowners who are making monthly payments that are around what they’d be paying in rent and sometimes even less. The North Shore Bank/GMAR Home Affordability Report for the fourth quarter of 2016 shows that while most sale prices were up from a year earlier, monthly mortgage payments covering principal, interest and property taxes remain attractive relative to rents in many parts of the metro area. For example, a homeowner could pay:

  • $741 for a lower-priced home in Pewaukee valued at $154,000.

  • $519 for a mid-priced home on Milwaukee’s west side valued at $79,950.

  • $969 for a higher-priced home in West Allis valued at $162,613.

  • $1,310 for a lower-priced home in Whitefish Bay valued at $233,600.

Of course, homeowners incur other costs that renters do not, such as home maintenance and repair expenses. On the other hand, they can benefit from substantial tax deductions and any appreciation in property value.

Most property values did rise during 2016, according to the North Shore Bank/GMAR report. But increases were mostly modest, with little effect on monthly payments. For example:

  • In Cedarburg, the median sale price for a mid-range home rose to $285,000 in the fourth quarter vs. $279,450 a year earlier. The monthly payment rose $60 to $1,451 from $1,391.

  • In Greenfield, the median sale price for a mid-range home rose to $152,500 from $149,159 a year earlier. The monthly payment rose $23 to $867 from $844.

Clearly, the residential real estate market has not gone into hibernation this winter. “The activity level is still really high,” said Michael Kellman, North Shore Bank’s senior vice president for consumer lending. “There’s a lot of interest among home buyers fueled by low interest rates, the strong job market and Millennials reaching the age where they want to get into a house.”

The market would likely be even hotter during this typically slow time of year if it weren’t for the continuing lack of inventory. Mike Ruzicka, President of the Greater Milwaukee Association of Realtors (GMAR), noted that last month saw the lowest number of December home listings in the last 16 years, with just 858 properties coming on the market.

Ruzicka said some potential sellers still appear to be holding off out of concern that the value of their home has not fully recovered from the recession that slammed real estate values between 2008 and 2013. But in fact, “The average sale prices are very close to, if not ahead of, where they were before the recession, and those prices were artificially high,” he noted. “In most communities we’re within a couple percentage points of those levels. So that really shouldn’t be a concern for sellers. Besides, it never works to try to time the market. The right time to buy or sell is when it makes sense in your life.”

Tamara Maddente, vice president of First Weber Inc., said 2016 was “the best year for home sales we’ve had in a long time. And 2017 is already on pace to be even better. Yes, there’s a lack of inventory, but there are three buyers for every property. One gets it and the other two move on to find something else. So we still have excellent activity.”

Coldwell Banker’s Brace agreed. “Homes that are priced right and in the proper condition go quickly. You can’t hesitate. I’m not talking half-million-dollar homes. I’m talking up to $200,000. They fly off the market. From $200,000 to $250,000, they don’t hang around long. Homes that are over $400,000 are selling but you’ve got to have the right person for that.”

Regardless of the price range, Realtors note that it’s become standard operating procedure to shop with a solid mortgage loan pre-approval letter in hand. “Most agents would never let a client make an offer without having been pre-approved for a loan,” said Maddente. “In this market, you’ve got to have your running shoes on and all your ducks in a row.”

Not all pre-approval letters are equally credible, noted North Shore Bank’s Kellman. “It’s important to do business with a lender who’s going to make sure you can close on your loan. Things are happening extremely fast and people need to be ready.”

Tonya Thomsen, a Realtor with Realty Executives Integrity, said she sees more sellers getting ready to go to market. “On New Year’s Day I took time to touch every single file on prospective sellers who told me during 2016 they were going to list but weren’t ready to move yet,” she said. “Quite a few are now saying they think they’ll be ready within the next few months. That’s good because, with interest rates picking up, a lot of buyers who are on the fence are starting to jump off. So I’m trying to get my sellers on the market by March.”

While some may feel we’re in the dead of winter, Chris Boland sees this as “the season of possibilities” when it comes to homes.

“If you’re considering remodeling, if you’re considering selling, if you’re considering building or buying, this is a fantastic time to explore your possibilities and talk to the professionals about them,” said Boland, North Shore Bank vice president -- mortgage lending.  “Now’s the time to be talking to sales agents, builders, remodelers and lenders, whether you want to get going immediately or get ready for a spring start.”

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