44 total views, 4 views today
For some, committing to buying a home is an easy decision. However, some struggle rationalizing homeownership. Adding to the confusion are the attempts to persuade tenants to be home owners by flaunting its benefits and financial savvy. However, the reality is that the rent vs. buy question is complicated.
Yes, homeownership does have benefits over renting. Besides having a place to live, the consensus is that homeownership provides stability and belonging to a community. Numerous studies have associated being a home owner with increased well-being and better health outcomes. Research by the Harvard University’s Joint Center for Housing Studies concluded that homeownership and growing wealth are associated (Herbert, McCue, and Sanchez-Moyano; Is Homeownership Still an Effective Means of Building Wealth for Lowincome and Minority Households? Was it Ever? Joint Center for Housing Studies Harvard University, September 2013).
But frustrated home buyers are returning to their rentals because of inventory shortages, intense competition, and increased home prices can be aggravating.
The latest National Association of Realtors (nar.realtor) release indicted a 1.5 percent decrease in home sales from the previous year. Although home sales were weak for the previous four months, home prices have increased for the 70th consecutive month! Nationwide median existing home prices increased 4.6 percent from the previous year to $264,800. The lack of home sale inventory is partly to blame for the decreased home sales, which increases the upward pressure on home prices.
The Greater Capital Association of Realtors (gcaar.com) release of August housing data for Montgomery County is not much different from the national figures. Single-family home sales in the county decreased 0.7 percent from the previous year. Inventory is 8.3 percent below last year’s available homes for sale at the end of August. But median home sale prices jumped to $443,000, which is an increase of 4.2 percent.
Those who are dissuaded from buying a home because of increasing home prices are facing rent increases. The median rent for Montgomery County is $1,647. But according to Healthy Montgomery (healthymontgomery.org), there is upward pressure on rent. This is not just a local phenomenon, it is nationwide. According to the Census Bureau, some metropolitan areas and cities have experienced increases well over $300. Rent increases are in part due to inflation and the increasing cost of owning a rental property. However, tenants are mainly experiencing rent increases because of supply and demand. Rental inventory is just as tight as home sale inventory. The Census Bureau (census.gov) reported that the vacancy rate decreased year over year. Additionally, the Census Bureau reported last year that the percentage of renters who moved during 2017 was the lowest recorded since 1988.
The robust economy has prompted the Fed to increase interest rates this year. Another rate hike is expected this week. According to Freddie Mac (freddiemac.com), mortgage rates have increased in anticipation of the Fed’s rate hike. According to Freddie Mac’s Mortgage Market Survey, the average 30-year fixed rate mortgage is 4.65 percent. Although mortgage rates are the highest in several years, rates continue to be historically low.
For many who continue to rent, they’re perspective may be justified by comparing housing costs. The Trulia Rent Vs. Buy Calculator (trulia.com/rent_vs_buy) is a tool that compares these factors. Paying rent for a long term may make sense if your rent is low. However, buying can be a better long-term decision when comparing similar size properties and housing costs.