by Freddy Rangkuti

Created on: February 18, 2008   Last Updated: December 09, 2008

If anyone's unsure whether or not to buy or rent? I would think the decision would come down to two things: (a) do they think there's going to be a property crash in the short term; and (b) how much money would they save by renting as opposed to buying?

In regard to the property market in Boston, personally I see prices crashing (because of mortgage problems). In the short term prices already slow down and continue to go down until next year.

When the net costs of owning are less than those of renting, the argument for buying becomes overwhelming. So long as home price do not fall sharply, home buyers in these places will do much better than renters. For those who has been making the commute year by year, it is better buy in remote areas with advantages have a yard and acres of land. But when owning is more expensive every month, buyers are betting entirely on price appreciation.

In 2008, the number of new homes bought with cash fell nearly 24 percent while mortgage guaranteed by federal agencies such as the Federal Housing Administration fell 16 percent.

According to Warren Group reported as cited by Boston.com, Massachusetts single family home sales fell 23.3 percent in December on a year to year basis, and the median price of a single family home sold in December saw the largest drop all year, falling 10.5 percent to $276,568.

With these problems above, we come to the questions. Which one better, buy or rent? The decision is depend on how much house can you afford? To know this, we have to understand debt to income ratios. The standard debt to income ratios is the housing expense, or how much of your gross (pretax) monthly income would go toward the mortgage payment. As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income. To calculate your housing expense, multiply your annual salary by 0.28, and then divide by 12 months. The answer is your maximum housing expense.

For example, a home buyer who makes $ 100,000 a year. The maximum amount for monthly mortgage related payments at 28 percent of gross income would be $ 2333 ($100, 000 time 0.28 = $28,000, and $ 28,000 divided by 12 months = $ 2333.33).

In Boston, "rent ratio" is just above 25, for example, a typical four bedroom house in Brookline, Mass, costs about $ 1.2 million to buy and $ 4,500 a month to rent. Based on an analysis of the major costs and benefits of owning and renting, including tax breaks and owning a home today is more expensive than renting.

There are no new home buildings opening in Boston for the next 12 months, it means the lack of new house will continue to put pressure on rents (annual rent increase about 5 percent) and annual home price appreciation -4 percent.

It's cheaper to rent than to buy. The cost of your mortgage and real estate taxes is likely to exceed what you will pay for a rental, so you will not only make a lump sum in cash, your monthly costs will go down.

If rents are high in your area, higher than your mortgage plus taxes and other home expenses, and you think the property will appreciate significantly, then holding and renting generally makes economic sense. This year, demand remains steady and rents are up in both the urban and suburban commercial real estate market.

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