Should renters jump into real estate market now?

WSJ weighs the options available to renters

Reasons to buy:

-Prices will eventually recover. Although no one can predict with certainty when the housing market will reach bottom, over the long run pressures from immigration and the formation of new households (currently around 800,000 a year) will push home prices up. The longer you stay in your home, the more likely you will see equity build up. And most owners do stick around long enough to outlast economic downturns. Government data show that 50.2% of single-family owners stay put for at least a decade.

-Your investment is leveraged. Even though lenders are requiring much greater down payments than they did during the boom, if you are borrowing money to buy your house, your investment is leveraged. In other words, if you put $10,000 in stocks, and it increases 10%, you've made $1,000. But if you put $10,000 down on a $100,000 home, and its value increases 10%, you've made $10,000.

Reasons not to buy:

-It's expensive and hard to move. If you're suddenly out of a job, being able to pack up and move quickly increases your employment prospects. But if you live in a city that's experienced massive layoffs, like Detroit, it may be extremely difficult to find a buyer for your home.

-Your money is tied up. Lenders are now requiring substantial down payments, which cuts back on the amount of money available for alternative investments, as well as the amount of money you have available for emergencies. Not long ago, you could access this money easily through a home equity line of credit, but nervous lenders have been severely restricting these as home prices have plunged.

Read the article for more points on both sides of the debate. ARTICLE: WSJ

Related: HighRiseSF posting - March 26, 2009