The Houston housing market is seeing an all-time high in terms of existing home sales price spurred by booming job growth, record low interest rates, and lack of inventory. That leaves many people asking themselves, “Is now the time to buy?”

Buying a home is probably the largest financial purchase a person ever makes and there are many factors to consider. Not everyone should be a homeowner – I know, BLASPHEMY! As a realtor, why would I ever suggest such a thing? Well, for one overwhelming factor – it’s true. For another, sometimes it makes better financial sense to rent now and own later. So, how do you know when to stop renting and make the move to home ownership?

Here a few guidelines that might help you make an informed decision:

FINANCIAL READINESS

Most rental expenses are fairly minimal -- first and last month’s rent and an income no less than three times rent. The problem for most renters is that in Houston, rental rates are rising rapidly and many landlords are now demanding four times rent in income as well as double deposits for individuals with low credit scores.  According to HAR’s 2014 statistics, average rental rates in Houston for 2014 were $1123 for a one bedroom apartment and $1821 for a 3 bedroom. Homes rented slightly higher at $1325 for a one bedroom and $2084 for a three bedroom, pretty high numbers for the average Joe.

To buy a home, you will need between 3%-20% in cash for down payment and an additional 4%-6% for closing costs. If you put down less than 20% you must also factor in private mortgage insurance. Closing costs vary with the time of the year, tax values, lender fees, and a myriad of other factors. Always ask your lender to do a rough estimate initially so you’re not shocked at your total monthly note and the cash needed at close. Plan to spend no more than 2.5-3 times your annual gross income on the purchase price. A good rule of thumb (and one followed by the banks) is no more than 1/3 of your income should go to housing related expenses – otherwise known as PITI (principle, interest, taxes and insurance.) This is another aspect of your loan that a lender can estimate for you before you make an offer. According to HAR statistics, the average price of a home in Houston increased again in 2014 to $270,182 up from $248,591 in 2013. Additional expenses to keep in mind include home owners association dues and in the case of condominiums, monthly condo fees. Also consider is the cost of home maintenance. Budget 1% of the home’s worth for yearly expenses. And you will need to budget for that lawn mower and shovel!

DOES IT CALCULATE:

Despite what most of us are led to believe, home ownership is not necessarily the best financial investment. Many analysts will tell you that for long term financial gain, your own personal residence might not be the nest egg you imagine it to be. That being said, in many markets – Houston being one – it is cheaper to own than to rent, and according to HAR and Zillow, rental rates are expected to increase by another 5% in 2015. There just isn’t enough inventory to meet demand, especially in sought after areas. For example, a high-end, one bedroom apartment in the Museum Tower is listed for $3,700/month. OUCH!

While housing is projected to normalize in Houston, like rentals, it is still expected to rise another 5% in 2015 (per HAR and Zillow projections.) Low interest rates help offset this to some degree and an anticipated increase in inventory should keep multiple offer situations to a minimum.

There are many good calculation tools out there to determine which makes the most financial sense for you if you are prepared to make the leap. Two places to find good buy vs. rent calculators are realtor.com and the NY Times.

LIFESTYLE CONSIDERATIONS:

Some of us prefer the low-maintenance lifestyle of renting while others enjoy the feeling of groundedness that home ownership provides. The big question is “how long do you plan to live here?” If you are likely to make a move in the next two years, keep on renting. Or, if you are new to the area, you may want to rent for six months to a year to familiarize yourself with the wide variety of city sections and the numerous outlying suburbs. After all, Houston is the country’s fourth largest city. In general, you will need to live in your home at least three to five years (depending on the market) to break even with selling expenses.  So if you plan to move in less time than that, you will likely lose money.

You also need to consider your personal needs. Owning allows you to personalize your home to your tastes, add a room, or bring in the biggest dog you want (barring deed restrictions.)It also allows for space. Renting restricts your ability to adjust the space to your needs. Owning – especially a single family residence will afford you privacy that multi-family housing just cannot.

On the other hand, If prefer to “call the guy” as opposed to doing it yourself and enjoy the social aspect of shared common areas, renting may fit your lifestyle better. It’s an especially good fit for those who travel frequently and want the security of knowing their property is in someone else’s care.

INVESTMENT POTENTAL:

If you are good at putting money aside and can funnel it into stocks or other investments, some research has shown that you may be better of renting. While stocks and bonds can quickly be liquidated, a house cannot, and the housing market is vulnerable to swings. That being said, Houston has traditionally not been impacted by those swings to the extent that other coastal cities have been.

EMOTIONAL READINESS:

Despite the reasons favoring renting, people still love to own their homes. Why? Home ownership gives a sense of permanence that few other things ever will. Permanence often leads to higher satisfaction and sense of accomplishment. There is a reason people say your home is your castle. People like to be king or queen. But that word – permanent – often scares the commitment phobic. You may not like the idea of being tied to something for thirty years and you wouldn’t be alone.

Ultimately, home ownership is more personal than financial and there a number of factors that play into your decision to own or rent. Do the math and do the personal exploration … and contact a licensed Realtor.