It used to be a no brainer that you should buy a house as soon as you could. Renting didn't make sense if you had the ability to purchase, as you were building equity, and you could always resell your home for more than you purchased it for. Of course, when the house market suddenly crashes, and prices take a nose dive pretty much everywhere across the country, suddenly renting didn't seem like such a bad idea. You are not responsible for anything major that happens, you can move on whenever you want to, and your monthly costs are consistent. For some people, especially those living in high priced markets, it actually made sense.
The idea, of course, would be that you would take everything that you aren't putting towards rent, and invest it instead. You'd put it into the stock market, or bonds, or just straight into a savings account. If you got good enough rates, it would potentially even out pace the housing market, allowing you to get further ahead. Not everyone lives in that type of market, however, and if you can afford the costs of home ownership  it can be a great step to take. My wife and I have been renting the entire time we've been together, but soon we may enter the housing market. When looking at whether to rent or buy a house, here's why we decided to make the switch.

It is a Forced Savings Plan

If you know that you are going to be living in one place for a number of years, it can be a very good idea to purchase a house there. If you're not sure, then it may be better to rent. Quite simply, the costs of purchasing a home (transfer fees, taxes, legal fees), along with the interest on a new mortgage is a lot of money. There's a reason people say that you need to spend at least 5 years in a home to make it worthwhile, and it's because of the interest on a mortgage. Take a $300,000 mortgage, for example. Even with the insanely low interest rates you can currently get (ie. 2.99%), for the first 2 years, you are paying more money in interest than you are towards the principle. Each year you are paying $17,007.84, over half of which is interest ($8,792.83 and $8,545.34, respectively). After that, however, you are going to be getting more and more of the principle paid. If you currently pay $1000/month in rent, a $300,000 home would cost you $85,000, which would be around $43,000 towards the principle, building you equity, as opposed to paying $60,000 towards someone's else's mortgage. Yes, it costs more money up front, but you end up with more in the end.

Interest Rates are Similar

Nothing is guaranteed. Putting your money into the stock market can be risky, and putting your money into real estate could also be risky. Both investments require a lot of research ahead of time so that you're not putting your money into the wrong place. Both, however, have a chance to get a big payload as well. Sometimes you buy real estate that doubles its value in 5 years, sometimes it drops. Sometimes you buy a stock that doubles in price in a week, sometimes it drops in half. Both markets, over a long enough period of time, will climb up. Historically, the stock market usually has edged out real estate, but more people are comfortable with something tangible in the event of an emergency rather than a piece of paper with numbers on it. Both can be good investments, and ideally you'll have some investments in both.

Sweat Equity pays Dividends

Nobody likes to live in a crappy home. Most people, when they move into a property, will do something to make it their own. Whether that's something as simple as decorating and perhaps painting some walls, or if it's a complex addition to the house, everyone wants to make their living space their own. When you own your house, some of the time and money that you put into maintaining and improving your home will come back to you. A number of people make their living doing exactly this – fixing up a home and reselling it for more than what they put into it. This is definitely possible, if you purchase a home that needs some work. This is an option that is available to you if you are willing to put in the work. It is never fun to live amongst renovation or construction, but you'll often make your money back if you do.
Did you decide to rent or buy a house? Has the market changed enough to change your mind?

About Alan Schram

Alan Schram writes about personal finance and his encounters with it in his everyday life. Alan is recently married and is looking to save money on expenses and reduce his debts.