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Should You Rent or Own in Retirement?

How to make this key decision in today’s unusual housing market

When the time comes to make your next move — whether it's across the country to a sought-after retirement destination or across town to a place with more amenities — you have to make one decision off the bat: Do you buy? Or do you rent? That's never been an easy call, and this tepid housing market makes it even more difficult.

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Hands dangling house keys in front of an out-of-focus house - Rent or Buy a Home

"Many people continue to view home ownership as a lifestyle choice they want to make." — Getty Images

Here are five questions that will help you decide.

1. Which costs more?

Nationally, home values are expected to increase by about 1.7 percent over the next year. Rents are going up much faster, 5 to 6 percent a year on average, though gains in some parts of the country like Fort Myers and Naples in Florida are close to double those rates. Add to that the fact that mortgage rates are as low as we've ever seen them and renting tends to be pricier than buying in most metro areas.

Even when you add together your mortgage principal, interest, insurance and taxes, "you can pay less than you would renting … a comparable home," says Eric Belsky, managing director of the Joint Center for Housing Studies at Harvard University.

There's also the worry about rent being increased over time, he explains. Whereas if you buy — and get a fixed-rate mortgage — the largest part of your housing payment is never going to change. "That's why so many people continue to view home ownership as a lifestyle choice they want to make," says Belsky.

2. What's your timetable?

Time horizon is a very big consideration. "The shorter your time horizon, the more it makes sense to rent," says Stan Humphries, chief economist at Zillow, a real estate website.

Not only can closing and moving costs erase the advantages of buying, but you also need to give yourself enough time to recoup your investment if housing prices stagnate.

So how long is long enough? "The old rule of thumb was that you needed to be in a place for at least three years to overcome the costs of purchase," says Glenn Crellin, associate director for research at the Runstad Center for Real Estate Studies. "Most people are now thinking a five-year time horizon is closer in most places. It really depends whether the local market is seeing appreciation."

3. Are you going somewhere new?

We've all heard the story about the friends of friends who dreamed of moving to Phoenix or Boca or (insert your own fabulous destination here), hated it when they got there, and high-tailed it back. It happens, but it doesn't have to happen to you.

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