NEW YORK (MainStreet) — Housing decisions are never easy, but the New Year is a good time to reevaluate whether renting or buying is right for you. Prices for both are on the rise — the national median home price was $208,500 in 2014, an increase of 5.8% from 2013, according to the National Association of Realtors. Meanwhile, the average rent payment has grown more than 12% from January 2013 to December 2014, according to online payment processing company YapStone. Here's what to consider before signing a lease or taking out a mortgage in 2015.
If you're thinking of buying...
As interest rates stay low, buying is a very attractive option, says Kathy Braddock, managing director of real estate company William Raveis NYC.
"Many people have made significant gains in the stock market over the past several years, and they have more money to pull out of the market for a down payment," she says. "And real estate has been proven to be a good diversification of assets."
With that said, the average homebuyer should keep in mind that a house is not a liquid asset.
"For most people, buying a home should not be viewed as an investment to flip, but rather a place to live with you and your family," she says.
In the current market, homes should be seen as a better investment than renting, but not as an investment, says Kurt Cambier, CFP and senior partner at investment advisory firm Centennial Capital Partners.
"The average appreciation over a long period of time is only 2.5%, he says. "A home is not the stock market, but one day you'll own something you can leverage."
There's no real rush to buy now to ensure a low interest rate — rates will be low for the next several years but home prices are a different story, he says.
"As the Millennials mature, it's going to put more pressure on commodity prices, and it's going to be more expensive to buy a home five years from now than it will be today."
Of course buying is only a solid option if you're in a place where you have job stability and a career that doesn't require you to be mobile, Cambier says. If you expect to move in the next three to five years, it's probably better to rent.
If you're looking for a good deal on a home purchase, you may want to check out your old neighborhood — as in your childhood neighborhood, suggests Diane Saatchi, vice president with real estate firm Saunders & Associates. The area where your parents live may not cater to young families as much as it did in the 1980s, but that's where the deals are, she says.
"Where your parents and grandparents are, that is where you are going to have big inventory," she says. "You're going to get stores and restaurants that suit people in their 60s, 70s and 80s, but you're also going to see some real deals."
Of course the main stumbling block to buying for many younger people is the amount of money required to make it happen, Saatchi acknowledges.
"There are always good reasons to become a purchaser. The downside is gathering the cash for the down payment. Some people are getting help from their parents or grandparents, others are just renting until they're financially ready."
If you're thinking of renting...
Even people who have enough money for a down payment on a home are often choosing to rent, says Whitney Fite, senior vice president of Angel Oak Home Loans.
"All the Millennial generation has known is change. They've seen the economy boom and bust, then re-boom and bust. They've seen people lose their homes to foreclosure, or buy a home for $250,000 and then a year later it's worth $200,000. It's what they've lived through, so it's only human nature for them to be sitting on the sidelines," Fite says.
Thanks to technology, many people are able to be mobile for work and for them, renting is the best choice.
"People who have a job where they're traveling all over the place, sometimes they're taking jobs in cities that aren't going to work for them long term," he explains. "They're not putting down roots. Also, they're probably not going to be at that company for the next 30 years, so it just doesn't make sense to buy."
If you think there is a slim chance you might need to relocate in the next several years, rent, Braddock says.
"Run the numbers. Do a 'rent vs. buy' analysis. See where it makes sense, and some of that will depend on which state you live in."
Most people don't start to invest and buy "hard assets" until they hit 35, Cambier says. It's largely the Millennials who are driving today's rental market.
"As soon as people get married and have kids, they're going to start thinking about a home. They're going to want a backyard," he says. "But we're still a few years off from seeing the Millennials really influence the housing market. Right now, they're happy where they are."
— By Kathryn Tuggle for MainStreet