Renting vs. Buying: Why 2016 is Key

Are you a renter who is trying to decide whether it’s time to become a first-time homeowner?

Well, sitting on the proverbial white picket fence may seriously get pricklier if you wait much longer, because 2016 is projected to be a pivotal year.

fence sittingLet’s consider the cost of renting vs. buying… and the cost of waiting too long for the simple joys of wheeling your trash can and fetching your mail at the end of your own driveway.

Due to the economic meltdown of 2008 that we know all too well, the ‘powers that be’ who regulate our national economy have been keeping home loan interest rates at an all-time historical low for several years to stimulate the economy. In the not-so-sexy chart below, you’ll see that rates haven’t been this low in 45 years! How long can they stay this low? Pretty much, there’s nowhere to go but up. All the buzz is that unemployment is way down and the economy is on the mend, so lenders have begun to raise rates this year and it’s projected to continue for a long while.

morgage rate historical

When purchasing a home, your cost is determined by two components: the price of the home and the current mortgage loan interest rate (principal & interest). Your purchasing power increases when interest rates are lower. So, even when home prices are escalating, you can still keep your mortgage payment within reach, as long as the interest rates don’t rise too fast.

Rents increase with demand. Demand is high right now, in large part  because the 2008 housing-industry bust caused builders to practically halt construction for so long that there is a nationwide housing shortage for people to buy. (Resale homes only cover a portion of the amount of people who desire to purchase at any given moment.) So more people are forced to rent. Builders are still behind the eight ball, playing catch-up to meet the pent-up demand for new housing inventory. Rental properties (and their hefty monthly nut) will continue to be in high demand.

This chart demonstrates the positive impact that our current low interest rates make on your wallet, when buying vs. renting:

Rent vs Buy Costs

The rising tide according to the experts…

Regarding mortgage loan interest rates, The Mortgage Bankers Association (MBA), the National Association of Realtors (NAR) and Freddie Mac all project that rates will increase by nearly a full percentage point by this time next year.

mortgage rates rising

Homes prices are also rising. According to CoreLogic’s most recent Home Price Index Report, home prices have appreciated (risen) by 6.7% over the last 12 months and it predicts that home prices will appreciate/rise by 5.2% over the next twelve months. Further, The Home Price Expectation Survey— which polls a distinguished panel of over 100 economists, investment strategists, and housing market analysts– projects in its most recent report that home values will appreciate by more than 3.2% a year for the next 5 years. (Good news on the growth of your investment, if you jump in now.)

The bottom in home prices since 2008 has come and gone

Home values will continue to appreciate for years. Waiting to buy vs. renting no longer makes sense. The key trend is that rents will rise more rapidly than homes-for-sale prices, adding to the already burdensome level of rents that exist in more than 85 percent of the markets in the country. In the near term, this reinforces consumers’ decision to buy.

Here’s what waiting does to your buying power
with only a 1% increase in interest rates
and a 5.2% increase in home prices year-to-year

Buy Now

~ Buying sooner rather than later could lead to substantial savings ~


And what else are you sacrificing?

When you are renting, the other ‘Cost’ is what you are sacrificing. You are sacrificing the benefits of home ownership. Being a homeowner has it’s perk$:

  • #1 Tax Benefits: When Tax time comes around, you can effectively reduce your taxable income by deducting the interest you paid all year on your mortgage loan and your annual property taxes. After all, the game is not just about what your earn; it’s about what you get to keep! And if you have a home office, you can usually write off a portion of such things as homeowners’ insurance and utility bills as well.
  • #2 Leveraged Investments: AKA using other peoples’ money. A lender (mortgage company or bank) allows you to put as little as 3 to 20% of your own money down to own an asset worth 97 to 80% more. And it appreciates over time. You can’t do that with stocks and bonds!
  • #3 Forced Savings: Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day. You can also borrow against the equity, once it has built up over time.
  • #4 Hedge Against Inflation: Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.
  • #5 Your House or Theirs? Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.  Why wouldn’t you pay yourself first?

So, get off the fence.  Don’t add insult to injury with the coming upward spikes of mortgage rates~

Get started with my home search wizard here.

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