Four years ago, Michael Choe appeared in the pages of this magazine for doing something spectacular: choosing to be a renter. At a time when real estate riches were Topic A (“Home $weet Home,” read the TIME cover line), the engineer, from Sacramento, Calif., decided to sell his house and move with his wife and baby boy into a rental. “Compared to owning, rent is cheap,” he said back then.
Exceedingly smart move. Since the summer of 2005, house prices in Sacramento have plummeted by half. Choe and his family — which now includes a second son — watched from the sidelines until the end of last year. That’s when the Choes moved back into a home of their own, a four-bedroom they plucked out of foreclosure at a 35% discount from what it had sold for two years earlier. (See pictures of Americans in their homes.)
Is this smart move No. 2? In other words: Is it really time to buy?
As the housing bubble inflated, the math increasingly favored renting. House prices went up and up while rents stayed relatively flat, meaning you could get a lot more bang for your buck by choosing a lease over a deed. Now, with the housing market in a pulp, the tables are turning. Choe’s most recent rental cost him $1,500 a month. His new mortgage payment, for a same-size house, is $1,570 (after a 20% down payment). “Not a bad deal,” he says — especially considering that once Choe takes into account the money he saves on taxes by deducting his mortgage interest, his new payment is actually a couple of hundred bucks a month less.
Sure, it’s easy to toss around reasons it’s always better to be a homeowner (that mortgage-interest deduction) or it’s always better to be a renter (no property taxes, and who wants to fix his own garbage disposal?). The more complicated truth is that at certain times it makes more sense to be one or the other. (See high-end homes that won’t sell.)
Tags: economy, foreclosure, Foreclosures, home $weet home, housing crisis, interest rates, Michael Choe, Own-ward Bound?, Real Estate, REO properties, Sacramento, Sacramento bank owned properties, time magazine, Tyler Smtih
