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On Real Estate: Time to Rent or Buy?

Rising rental costs and high demand for units could cost you more in the long run than buying.

Should you purchase? Are you thinking about renting? What is it going to take for you to make that big decision?

Prices are low and interest rates are the lowest in history, making this a great time to buy. If you plan on staying in a home for several years or using a property for long term investment, waiting for even a few months may increase the amount of money that a property will cost.

Still considering renting? There are many reasons to rent, but rising rental costs could cost you more in the long run.

Looking at statistics does not always indicate what the best decision is, but it is a place to start. According to Zillow, rents have increased 3 percent over the last year. That may not seem like such a large increase, but couple that with a decrease in home prices and the spread becomes greater.

So why are rents increasing?

Inventory is down. According to figures from the MLS, active listings in Eastside areas for single family homes are down 34 percent, condo listing are down 44 percent over April of 2011. The closed price is down 1 percent over the same time. Individual neighborhoods, of course, vary in values.

Low inventory is creating a multiple offer situation in all areas. Buyers are locked out because of being on the short end of a multiple offer situation, financing, lack of down payment or simply unable to find an acceptable property.

Foreclosures have also decreased. According to Trendgraphix, bank owned and short sales have decreased 43 percent over last April. But, this number is still large and brings many into the rental market. After foreclosure, this segment is unable to purchase for several years.

Paris Johnson, Windermere Property Management Issaquah, adds a twist to the normal explanation of rent increases. Where Paris used to see more sales if relocating workers were planning to stay for two to three years, she is now seeing an increase in demand for rentals. She explained, “Many of the clients I work with are relocating from California or the international market that work in technology fields. These high-end transient workers are not looking to put down roots. They are looking for good schools and location to work. Areas that offer these amenities command a higher price than comparable properties in other areas.”

Rentals on the Eastside near companies such as Microsoft can be several hundred dollars more. Executives in many companies are transferred regularly. With a short timeline for residency, falling home prices do not offer a payback to their investment.

The younger renter typically does not have a large down payment and is not willing to settle down in one area. Many times, renting enables them to experience living in areas that they could not afford to buy in.

These things are all bring more renters into the market for a limited number of rentals. With the limited number, prices will continue to rise. Maybe slowly, but the movement will prove substantial in the future.

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Joan Probala is the managing broker for Issaquah Windermere (Windermere Real Estate/East Inc.). She has 30 years of experience in real estate, construction and sales and is president-elect (2012) of the Seattle King County Association of Realtors.

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