From the NYT:
IN today’s market, with uncertainty the sole certainty up ahead, the age-old question — rent or buy? — becomes increasingly perplexing.
For example, in New Jersey, where average home values rose slightly only to drop precipitously last year, and where an additional 6 percent overall decline is predicted for 2011, is it even possible to discern which choice might be better?
Yes, said one market expert, after he crunched fresh numbers. Despite unusually severe fluctuations and distress in the New Jersey marketplace, the analyst, Jeffrey G. Otteau, concluded that it is a better deal to buy, as long as one holds on to the property for several years.
Using calculations based on sales data, Mr. Otteau deduced the following: After four years, the buyer of a $400,000 home, putting 3 percent down and obtaining a mortgage at 4.83 percent, will start to come out ahead of a renter paying $2,000 a month.
The gain in the fourth year is only about $7,000, once expenditures on maintenance, insurance, taxes and mortgage are figured in, said Mr. Otteau, whose company, the Otteau Valuation Group, provides monthly trend reports to the real estate industry.
But after 10 years, and assuming a 2.5 percent average increase in value, the homeowner comes out $97,516 ahead.
A property value increase of that amount per year is a “very conservative” prediction, Mr. Otteau said, and several brokers in the northern part of the state agreed with him.
“If you buy a good property in a stable community,” said Karen Eastman Bigos, who heads the Towne Realty Group in Millburn, “with today’s bargain prices and interest rates, it is virtually guaranteed that value will rise by more than that.”
The calculations indicated that a buyer making a 10 percent down payment would gain slightly less than a buyer paying 3 percent — mostly because of the home mortgage deduction on income taxes. (With a larger mortgage comes a larger deduction.)