Owning A Home is a Better Value Than Renting
Millions of Americans have decided in the past year that it was the right time to buy a house. This was true in Massachusetts where new home and condo sales increased 3.9% from 2019. In fact, more people wanted to buy homes than homes were available. High demand and low inventory caused home prices to jump 14% nationally from November 2019 to November 2020. In Massachusetts, home prices increased 11.4%. Condo prices in Massachusetts increased 9.2% over the same period. These rising prices are having an impact on home sales. In November, new homes sales fell 2.5% nationally from the previous month. It seems that rising home prices are causing sticker shock from some and causing them to sit on the sidelines. However, even with rising home prices, buying a home is still a better value than renting. Here’s why buying a home is more affordable…
Buying a Home is More Affordable than Renting
For many, the decision on whether or not to buy a new home or continue to rent is a logical one that comes down to dollars and cents. Is it more affordable in the long run to continue to rent or is it a better value to buy one of your own? According to a recent study by ATTOM Data Solutions, owning a house is more affordable than renting in about two-thirds of all markets in the United States. So, why is owning a home more affordable than renting?
Rising Rent Prices
While home prices have been increasing, so have rents. Rent prices have increased dramatically over the past decade across the nation. Some expected that trend to end this year because of the pandemic. However, rental prices stayed the same or even increased. As the pandemic caused havoc in the economy and increased unemployment, many feared a wave of evictions. This wave never became a reality as federal, state, and local governments enacted eviction moratoriums to protect those harmed by the pandemic. These policies prevented a huge drop in rent prices that many expected. As the pandemic gets under control and the economy improves, expect rent prices to continue their upward trend.
Increasing rent prices makes owning a home much more affordable in the long run. The reason for this is that rent prices are increasing faster than incomes. Rent is taking up a much larger portion of financial budgets every single year. While rents continue to get larger, those with fixed rate mortgages see their monthly payments stay the same. Even if income increases come slowly, fixed mortgage payments start to take up a smaller portion of your budget. Fixed mortgage payments give you a better long term financial picture and help you budget. Rent, on the other hand, is hard to plan for in future years. Rents can increase dramatically from year-to-year and drastically change your budget. Increasing rental prices is making it far less affordable than buying.
Historically Low Mortgage Rates
The biggest reason that owning a home is more affordable than continuing to rent is that mortgage prices are near historic lows. Rock-bottom mortgage rates mean that owning is very affordable in the long-term. Low mortgage rates save you thousands of dollars on the total cost of your mortgage over the life of your home loan.
Low mortgage rates combined with rising home prices all means that buying is better than renting. This is because increases in your home value give you immediate equity in your home. Many people think of a home loan as just another debt. However, that is not entirely true. Even though you do own the full amount of your loan, as well as interest, as you pay down your loan you start to build equity. Equity is the difference between the value of your home and the amount you still owe on your mortgage. As you make more payments on the principal of your mortgage, your equity increases.
Equity is an asset. You can use equity as a line of credit to help yourself achieve a bunch of financial goals. Renting does not allow you to build equity. It is pure debt. Making your mortgage payments does more than put a roof over your head. It also helps you build assets and financial wealth.
Final Thoughts
The bottom line is that owning a home is more affordable than renting, especially over the long term. This is true even though house prices are rising dramatically across the nation. The low rates of today’s home loans means that buying a house is still a value. However, today’s low mortgage rates will not last forever. As the pandemic comes to a close and the economy begins to improve, today’s low interest rates will disappear. There is good reason to believe that this is already happening. Mortgage rates have started to increase at the beginning of 2021. As the economy improves, these interest rate increases should become larger and more frequent.
The bottom line is that if you have been debating about whether or not it makes more financial sense to buy or rent, you now have the answer. The numbers do not lie and it is clear that it is better to buy. However, if you want the math to be definitely in your favor then you need to buy while mortgage rates are low. That means it is time to act now. Delaying your decision to buy a new house can cost you thousands of dollars as mortgage rates increase. If you do not want this to happen to you, contact us! The team at Streamline Realty is ready to jump into action and help make your dream of owning a home a reality.
