With the nation quaking in their collective real estate boots, the Portland real estate market is bucking the trend and is alive and moving forward. It’s not the scorching market of yester-months but we’re not seeing the bottom drop out like some had predicted.
RMLS Market Action for July puts 12 month appreciation around 18%. That certainly takes into account the hot months at the beginning of the 12 month cycle but if we end up around 10% appreciation for 2006, nobody should be complaining.
Rents are cheap compared to real estate right now. Rental rates have not increased as rapidly as property prices. Renting is often considered an investment for the future- your landlord’s. The costs to landlords will eventually get passed down to the tenant.
Let’s do a little simple math and see where it takes us (think big picture). One is to rent a house that just sold for $300,000. It rents for $1400 per month. A year’s rent is $16,800. The other option was to buy that house with 20% down. Last year, it would have cost about $246,000 if we use the 18% appreciation figure. 20% down would require $49200 cash. Today it would require $60,000.
Looking ahead, we predict appreciation for the next 12 months to be 9%. Our same $300,000 house is now worth $327,000 and our cash to buy it has increased to $65,400. A $60,000 investment has returned $27,000 equity in 12 months. Yes, we are ignoring the closing costs, costs to resell, the tax benefit and the higher cost of the mortgage compared to renting and other factors. Alternatively, you can spend $16,800 in rent. My rough calculation that your mortgage and taxes payment will be $1800.
But I don’t have $60,000! We’ll take the same house. Put zero down. Ask the seller to pay up $9,000 in closing cost and prepaid expense so the house effectively sells for $309,000. At the end of the year, there is $18,000 in equity for no out of pocket expense at closing. Rough mortgage calculation including taxes $2500. The difference is the amount of the loan and a higher interest rate for 100% financing.
Should you rent or buy? That entirely depends on your situation.