Rent Vs Buy: What’s The Better Move?
The real estate market is doing well, and many renters out there are debating on whether they should rent vs buy. Here are some of the latest statistics to help make the decision easier.
Home values have been on the rise the last few years, and the national housing market has more than made a recovery.
In fact, many numbers we have seen over the last 12 months rival the numbers we saw during the peak of the real estate market explosion in the early to mid 2000’s.
Here is a look at the year-over-year appreciation rates over the course of the last year:
2013 was an explosive year for real estate, and that continued into the early part of 2014.
As 2014 progressed, we saw home values continue to appreciate, but the rate at which they appreciated slowed down. This was actually a good thing.
Before the real estate market crashed, home values skyrocketed. However, this kind of explosive growth cannot be maintained over time, and as a result, a market correction becomes inevitable.
This lead to the bubble bursting and the real estate market crashing. The first half of 2014 looks much like the real estate bubble–double digit appreciation month after month.
However, around the middle of 2014 the market corrected itself and appreciation slowed down to more sustainable rates.
Traditionally, real estate appreciates at a 3%-4% rate annually. This has been the historic norm over more than 100 years.
So, appreciation rates went from 13% at the beginning of 2014 to rates in the 4% range by year’s end. This is good news because this is a healthy rate of growth that can be maintained over time.
There are many reasons owning a home makes sense, both financial and non financial. A recent survey by Freddie Mac revealed the top reasons renters wanted to own a home. Here is a summary of those reasons (both financial and non financial):
Rent Vs Buy: Financial Advantages
For this post, I am focusing on a couple of the key financial reasons it makes more sense to buy.
First, interest rates are near their historical lows. They currently are at or below 4%. To put this in perspective, here is a look at the average interest rate for the last few decades:
What this means for today’s buyers is that more than likely, a mortgage payment will be less than a rent payment.
Whether you are paying a mortgage or rent, either way you are paying someone’s mortgage. Why not have that money benefit you?
Here is a fact that is often overlooked when it comes to the rent vs buy debate: with a mortgage, your monthly housing payment is locked in for 30 years.
Think about that–in 5 years you will still be paying the same each month. If you rent, that is not the case.
After all, what chances do you think there are that rents will go down over the next 5, 10 or 20 years? To answer that, here is a look at the median rent over the last 30 years:
Rent Vs Buy: Let Your Money Work For You
If that doesn’t settle the rent vs buy debate, then perhaps the next two facts will.
Home ownership creates wealth, much more than renting.
You can see how big of a difference there is between an American family’s net worth that owns their own home as opposed to renting.
Today’s market gives home owners a big advantage over renters.
In fact, this advantage has always been there, but it is an even bigger advantage today.
That is the percentage of your monthly income going towards your housing cost.
Traditionally, it has been 22% for owners and 15.3% for renters.
In today’s market, home owners are spending only 15.3% of their monthly income on housing, while renters are spending 30.1% of their monthly income on housing.
Of course, with home ownership comes more responsibility.
You have to maintain a house that you own, and if something goes wrong there is no calling the landlord to come fix it.
Some people simply do not want the responsibility. However, any money spent on your home will come back to you in appreciation.
When you look at it from a financial perspective, the decision between rent vs. buy seems obvious. In the end, you have to make the decision that you feel is best for you.
For more helpful information to help you decide between rent vs. buy, visit my Pam Marshall Realtor website.