Today in S.W. Florida represents a unique and rare opportunity that clearly defines the advantages of home ownership over renting.
The factors that need to be considered when reviewing “Ownership Versus Renting” are simple:
What would it cost you to buy the home you would consider renting and what is the risk of depreciation versus appreciation?
In late 2005 and early 2006 the real estate market in S.W Florida finally topped out. At that time, interest rates were about 6% on a 30 year fixed rate mortgage and the “median home price” in Lee County peaked at $322,000.00. The principal and interest payment on an FHA 30 year fixed rate mortgage with 3.5% down on a median priced home was approximately $1850 per month plus Taxes, Insurance and Mortgage Insurance which would have put the payment in the range of $2400 to $2600 per month. The rental rate was in a range of $1400 to $1700 per month typically. This period would have been a much better time for a family to have rented their residence especially considering the decline in the Lee County “median home price” which, in September of 2011, has been reported at approximately $110,000.00.
So, what does this mean in terms of the question of “Ownership versus Renting” in today’s market?
If a family purchased a “median priced home” in Lee County today for $110,000.00 using the same FHA 30 year fixed rate as described above and assuming the same credit and income scenario, the principal and interest payment with 3.5% down would be approximately $540.00 per month. Using typical taxes, insurance and mortgage insurance amounts for a home in this price range would put the total PITI & MI (principal, interest, taxes, insurance and mortgage insurance) at approximately $775 per month which is in the range of the typical rental rates of homes in this price range of $700 to $900 per month.
Clearly, a family seeking to buy a Single Family Home in S.W Florida enjoys an obvious advantage over the opportunities that existed 5 years ago. While there is no guarantee of appreciation from the current depressed valuation levels of median priced homes in Lee County, the risk of double digit depreciation has been significantly reduced and in fact, the “median home price” for the Fort Myers/Cape Coral area has increased 17% year over year from the September 2010 level of $94,400.00 to the September 2011 level of $110,600.00.
The current market conditions give a distinct advantage to the family that chooses to purchase their residence over renting it. In addition to the annual housing costs that favor the purchaser over the renter, the pricing, available inventory and affordability factors make today’s environment in S.W. Florida a true “Buyer’s Market” for the foreseeable future.