26 April 2008 - As many would-be home buyers remain on the fence about becoming homeowners, demand for rental space across the country continues to increase - and so do the prices.

Along the Wasatch Front, renters are particularly feeling the squeeze. Over the past year, rent prices in Salt Lake rose 9.8 percent, the largest increase among 19 major Western markets surveyed by RealFacts. Rents soared by 15.9 percent in the Provo-Orem area and rose 6.8 percent in Ogden-Clearfield.

Not only are rental prices rising across the Wasatch Front, but apartments are becoming harder to find in this tight rental market. At 2.1 percent, Salt Lake City has the fourth-lowest multi-family vacancy rate in the U.S., according to the Commercial Real Estate Forecast from the National Association of Realtors. Typically, a vacancy rate under 5 percent is a landlord's market, a situation characterized by fewer concessions and higher rental rates, says the NAR report.

With rents across the U.S. projected to rise 5.3 percent this year, some renters may reconsider decisions to delay homeownership - especially since buyers, unlike renters, hold quite a bit of negotiating power these days. Plus homeowners who hold fixed-rate loans know their payments will remain the same, regardless of what happens with the economy.

So how do you know if now is the right time for you to buy or to rent? One rule of thumb says that if you are going to move within three years, you should rent because of the time and costs associated with buying and selling. Staying in a house for a longer period also reduces your risk of loss.

Take, for example, the volatile markets in Arizona, California, Florida, Nevada and Washington, D.C. that we hear so much about on the news. For the buyer who bought a year or two ago and needs to sell, the current price declines of 5 to 20 percent could be problematic. However, homeowners who bought for the long term are seeing a different picture: Even with price declines, a homeowner who bought in 2000 would have made $123,000 in Phoenix, $150,100 in Orlando and $252,000 in the Washington, D.C. metro region, according to data from the National Association of Realtors.

Federal Reserve data further confirm the long-term wealth accumulation that housing can bring: In seven years - the approximate time a buyer lives in a home before selling - homeowners' net housing equity increased by $3.4 trillion.

Another factor to look at when determining whether to buy or rent is the monthly mortgage payment. Determine what your monthly mortgage payment would be if you decided to purchase a home at today's prices with today's interest rates. Then make sure you could afford the payment along with the insurance, property tax and home maintenance costs.

If you're sitting on the sidelines hoping prices will drop, make sure to consider the effect of higher interest rates in your calculations. Lawrence Yun, chief economist for the National Association of Realtors, says he is expecting the Federal Reserve to stop cutting interest rates at the end of this month and says the Fed may begin raising rates at the end of the year to curb inflation. He provides the following scenario:

Assume you need a $200,000 loan. With interest rates at 5.8 percent, your monthly payment would be $1,174. If home prices fell 5 percent in your area, thereby lowering the loan to $190,000, but rates rose to 6.3 percent, the new monthly payment would be $1,176 - almost the same amount as if you hadn't waited and you'd be missing out on the tax benefits of homeownership.

Although there are a number of considerations that go into any home-buying decision, make sure to include the effects of rent prices and interest rates in your analysis since they may become determining factors in your homeownership decision. If you want to learn more about real estate and lending conditions in your area, contact your local Realtor - because nobody knows Utah real estate like a Utah Realtor.