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Originally published Friday, April 6, 2012 at 8:02 PM

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Rent vs. own: A rhetoric reality check

Author Jane Hodges offers advice about what to think when you hear from well-meaning friends as you make the call about where and how you are going to live.

Special to The Seattle Times

Town Hall discussion

Jane Hodges

"Rent vs. own" author Jane Hodges and Jon Talton, Seattle Times business columnist, are participating in a panel discussion, "Should you rent or buy?" at Town Hall, Tuesday from 7:30-9 p.m.

More information: townhallseattle.org

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Deciding whether to rent or buy is challenging for many Americans now, especially those who came of age during a boom and waited for prices, interest rates and foreclosure inventory to improve, as they appear to have now. With new apartment construction going up, there are signs that rent prices could rise.

So, should you rent or buy? Ultimately, the decision hinges on:

• How long you plan to stay in one place (the longer the better if buying).

• How much you plan to put down (the more the better if buying).

• How your credit score looks (the better the better in both cases).

It also depends on your expectations for how much you ought to spend on housing and what your choice does to your overall financial picture — because if what you pay to get into your new housing wrecks the rest of your financial life, perhaps it's not worth it. (See sidebar.)

Then, of course, you'll have to tune out a lot of rhetoric from well-meaning friends and family and commission-driven professionals about what to do.

Here's what you might hear — and what to think about when you hear it.

"YOU SHOULD BUY!" arguments

Claim: Owning a home is vital to the American dream!

Consider: The American Dream, some cultural observers and historians argue, has become an excuse for Americans to overstretch financially, for the U.S. to live in a perpetual red it can't escape, and for people to buy not just more home than they can afford but more everything than they can afford. Does owning a place make you more American?

Claim: Owning your home is always a great investment!

Consider: How great an "investment" your home is depends on how long you stay, how much you put into it, and when you happen to buy and sell. In recent years, buyers would snap up homes with plans to move in four or five years, then eight years, then 10 years. Will you stay a decade?

Claim: Homeownership makes for better communities!

Consider: Some research suggests homeowners are more likely to participate in civic activities, voting and volunteering. But some think otherwise: Richard Florida, author of "The Great Reset," points to data suggesting high homeownership rates in specific communities have presaged higher rates of unemployment in them because when a local economy falters owners can't sell and move for work.

Claim: You're making a good living and are a grown-up, so you should own.

Consider: The average first-time buyer in America is typically in their 30s, according to National Association of Realtors data. Buying may seem like a way to accelerate adulthood. But if your income and financial position haven't hit their groove, or may change drastically, ask yourself if you're ready.

Claim: Owning a home is a forced savings plan.

Consider: There's some merit to this argument: If you buy a home you can afford, maintain it properly (and/or invest in remodeling and repairs to sustain or boost its value), develop equity through either a big down payment or staying a good long while, and sell it in a decent market, you will likely make some money when you exit.

That's an awful lot of "ifs," isn't it? Most first-time buyers make far less than a 20 percent down payment, and many don't stay long before moving. Own if you want, but consider the "savings" a small, not-guaranteed bonus rather than a sure thing.

Claim: Homeowners get special tax deductions and perks!

Consider: Homeowners do get a variety of tax deductions, which offset the costs of owning, ranging from mortgage interest to property taxes. However, as politicians grapple with how to fix the U.S. housing problem, home-related tax deductions may be reduced or erased, especially for higher earners who, some research shows, are the owners most likely to use them.

Claim: Home prices are changing — get in while you can!

Consider: Everyone's an amateur economist, right? If you're interested in buying, acting solely on price behavior and ignoring your personal circumstances turn home buying into stock picking. If you're not really committed to the lifestyle for the long haul, don't treat your home buy like a stock buy.

Claim: Interest rates are shifting! You should pounce!

Consider: There are two kinds of interest rates: The "best-advertised" rates (i.e., if you have perfect credit and satisfy other criteria) and the "real" interest rate you'll pay (i.e., add a few basis points here for imperfect credit, add a few there for your low down payment, etc.). Are you actually getting more home (based on a low interest rate) — or are you getting more loan because you don't qualify for the best rates?

"YOU SHOULD RENT!" arguments

Claim: You need your flexibility — don't get tied down!

Consider: If you're new to the workforce, new to the country, or in complicated financial circumstances (ending a relationship, for instance) renting may be easier while you sort out your new landscape or if you're unsure how you'll live in a year or two.

If you really want to own, though, you could make it work if you apply foresight. Many would-be owners with lives in flux don't mind the extra to rent out their place when they're away or get roommates to make ends meet.

Claim: You can't buy; you don't have 12 months of income saved!

Consider: In an ideal world you could buy, invest, and save all at once, you may have to pick and choose your priorities as you balance the competing demands of adulthood. If you can afford to buy a place, maintain it post-purchase, and stash away emergency and retirement funds, then you're probably in decent shape. Just don't put everything into your housing costs.

Claim: Renting is cheaper than owning, the best way to start out.

Consider: Renting isn't always cheaper than owning, not in some markets with low rental inventory or a glut of cheap for-sale homes.

Rents rise and fall with the economy and local employment picture, so each time you renew your lease you may pay more.

If you want to buy but keep your housing costs in the renting ballpark, you can buy in a cheap neighborhood or co-buy with a friend, partner, or family member for a monthly payment that trumps renting — albeit with maintenance responsibilities.

Claim: You're single. What if you meet someone?

Consider: Single women have bought at a faster clip than single men for the past two decades, regardless of their relationship status. Men, it appears that when buying single you're likely to view real estate as an investment (a place to flip, or where roommates help you pay the mortgage) or a sign it's time to marry (a place to nest with a potential spouse). Does housing carve your relationship status in stone?

Claim: Rent because homeownership is a conspiracy!

Consider: Everyone has that Doomsday friend who equates homeownership with "the 1 percent." But eventually everyone starts screening his calls. If you want to live in an owned home, can afford it, expect to be able to afford it in the future, and will enjoy it for years to come, don't forgo these joys because your crank pal thinks you're bowing to convention. How guilt-prone and paranoid are you?

Claim: I don't miss the yard at all.

Consider: Renting's biggest advocates are often former owners turned born-again renters. But dig below the surface and you'll see that many owners who go reactionary are really on the rebound — lamenting the particular property they chose to purchase, the financing they used to buy or their own lack of realism about maintenance tasks and costs.

If you go into ownership with eyes open and an affordable mortgage, the rest of the ownership learning curve won't be too bad.

Claim: Renting is the only option if your credit stinks.

Consider: What's a "good" and "bad" credit score varies from one minute to the next. While scores below 600 are generally bad and scores in the mid-700s or north are typically great, the bell curve moves around a bit on what's considered doable for lending purposes in the middle of the spectrum.

Low scorers can get loans — at higher interest rates — and then refinance them later. If buying with a higher-scoring partner, their good credit can offset bad credit. Low scorers can also "rent to own" a property. These options have pros and cons, but they challenge the myth that you have none.

Claim: Renters are healthier and happier than owners

Consider: One Wharton School of Business study revealed that while owners may regard their neighborhood more favorably than renters, they socialize less and weigh more.

It's not surprising: Owning can be stressful. However, keep in mind that most owners band together in a kind of virtual and backyard fence brotherhood, sharing tools, tips, names of handy hires, and giving each other advice — it's a new kind of community centered on different concerns.

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