- The Washington Times - Friday, December 21, 2001

Did you know that it is sometimes cheaper to buy a home than it is to rent one? Current low interest rates enable more people to afford more home. Factor in this area's high rental rates, and it's easy to see why many renters are discovering that buying makes economic sense.

Current interest rates allow some people to buy who never could have before.

Just 18 months ago, the rate on a 30-year fixed-rate mortgage was 8 percent. Recent rates as low as 6.75 percent would lower the monthly payment on a $200,000 loan by $170 per month. That's enough to make homeownership affordable for many renters. Mortgage interest rates have crept upward over recent weeks, but they are still near lows not seen in this region since the 1960s.

While home buying is becoming more affordable, rents have recently become much higher. In Alexandria, for instance, the average rent shot up 10 percent in the past year. Price hikes have been similar in the District and other area counties. Rates have leveled off in recent months, however, after four years of climbing.

Supply and demand being the force that it is in real estate, rising rents are primarily a result of limited supply. Apartment vacancies were as high as 3 percent in 1996, but they fell sharply after that. By 2000, less than 1 percent of area apartments were vacant, according to Delta Associates, a real estate consulting firm in Alexandria.

"We have had a critical shortage of housing of all types for a number of years," says Mark Teather, a vice president with Delta Associates. "The apartment market is starting to open up, and soon there should be more choices available for consumers. But there need to be some more apartments built so consumers have more affordable options."

Interestingly, the prices of homes have also risen in the past few years, also due to limited supply and high demand. Appreciation of 10 percent or even 15 percent per year has been seen in some of the area's most popular neighborhoods caused by the competition among buyers for the limited number of homes for sale.

This lack of supply has brought on a revival for the condominium market.

During the slower mid-1990s, it was sometimes difficult to sell a condo especially if you wanted to make a little profit. "Condos went through a bad period, but there are so many buyers now that many have turned to condos as the town home market grew thin," says Bill Duerre, an agent with Weichert Realtors in Fairfax.

The interesting thing about a condominium community is that renters and homeowners often live on the same floor. Some renters are discovering that buying their condominium may make more sense than renting it.

"The rental market is very tight, and prices have gone up," Mr. Duerre says. "A lot of people who used to be turned off by condominiums are buying them today."

Because of the mortgage interest deduction, it can be cheaper to own than rent. Homeowners can deduct the interest they pay on their mortgage from their income for tax purposes. This can save you hundreds of dollars each month, making the net cost of owning comparable to renting in many cases.

But this is becoming less true in some markets, such as Northwest Washington.

"It's a weird market, because so many rentals started selling once they had appreciated," says Mark McGee, sales manager at Pardoe Real Estate's Wisconsin Avenue office.

Condominiums in that market have appreciated as much as 20 percent or 25 percent this year, according to Mr. McGee. This has caused many owners to sell and reap the profits. But this has also taken many condos out of the rental market, inflating both rents and sale prices significantly.

"There's such a demand for any housing in the District, condominiums are being bought by people who had never considered them before," Mr. McGee says.

One of the advantages of buying in the District is the $5,000 tax credit for first-time home buyers. Even if you have bought a home elsewhere before, you can buy a home in the District and receive a $5,000 credit on your federal taxes. When you couple that with the low- or no-down payment programs, buying begins to make sense for a whole new segment of people.

If you are a renter who thinks buying would just be too difficult, you will probably have to jump through similar hoops to get an apartment these days, anyway.

"When a rental customer comes into our office, they go through a qualification process that is actually rather similar to the approval process to buy a home," Mr. Duerre says. "They have to demonstrate their level of income, have a credit check, et cetera."

Renters who default on their monthly payments are a hassle and a financial drain for property managers, so they have become increasingly strict about creditworthiness and income qualifications when they accept renters.

"With the high demand for rentals today, landlords can be as choosy as loan officers," says Chris Edwards, a financial services consultant with Weichert Financial. "It used to be that people who couldn't buy because their credit wasn't good enough were forced to rent. But now you need to have good credit to rent, too."

It can be quite thrilling for someone to buy a home when they only dreamed of finding a decent rental. Mr. Edwards recently helped a young European couple who received permission to stay in the United States through the green card lottery.

"They assumed they would have to rent," Mr. Edwards says. "After talking, however, we realized they had the potential to purchase. Their Realtor took them out to see homes, and they liked a couple of town homes that were for rent. Nearby, they found some similar town homes for sale. I had already approved them for a loan, so with just 3 percent down, they bought their own home only four months after arriving in our country."

The most remarkable thing is that this couple's monthly out-of-pocket expense worked out to be the same as it would have been if they had rented. Besides that, they are building equity in their own property now, instead of helping their landlord build his equity.

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