Due to home prices climbing during the pandemic and mortgages now at 6.27%, a typical renter now pays 40% less a month than a first-time homeowner in the 50 largest metro areas in the U.S., CNBC reports.
In fact, homeowners are now paying an average $1,920 more on housing a month in the top 10 metro regions, according to Realtor.com.
“This is an extraordinarily unique market because of the pandemic and such a run on housing, so you have home prices very high,” says Diana Olick, real estate correspondent for CNBC.
High real estate prices aren’t likely to come down anytime soon, even with the specter of a recession on the horizon. Fewer homes are on the market, which has pushed up prices and caused a severe lack in affordable housing. Added to this is the fact that mortgages, along with interest rates, are expected to remain high for the foreseeable future.
Renting being cheaper than owning is a definite about-face. Finding an affordable and desirable place to live has historically come down on the side of owning.
When Owning Is Smarter
However, there are still factors that could make owning a home the smarter decision, experts say. If you plan on living in it for five to 10 years, if you would like to build up equity, and if you have good credit and the money for a 20% down payment, you are in a good position to buy.
“You don’t buy a house based on the price of the house,” Olick says. “You buy it based on the monthly payment that’s going to be principal and interest and insurance and property taxes. If that calculation works for you, and it’s not that much of your income, perhaps a third of your income, then it’s probably a good bet for you.”
This is especially true if you want to put down roots, have job security and expect to stay in that home for more than 10 years, Olick says. “You will build equity in the home over the long term, and renting a house is really just throwing money out,” she says.
Symbol of Wealth
Owning a home is usually a person’s biggest purchase of their life and is still, for many people, emblematic of the American Dream. For young couples starting a family, setting down roots in a community with a good school system is also a liberating and laudable achievement.
Seventy-four percent of people say owning a home is the highest gauge of prosperity, according to a Bankrate survey. This surpasses their views on their careers and college degrees.
Owning versus renting also puts you in control of where you live as opposed to being beholden to a landlord who may increase your rent substantially, not respond to a repair request in a timely fashion, or even decide not to renew your lease, as U.S. News & World Report points out.
There are additional financial plusses and minuses to owning versus renting. On the plus side of owning, if it’s an apartment or condominium, you can also deduct on your taxes the portion of your management or homeowner’s fee that goes towards real estate taxes and mortgage payments. This is in addition to any mortgage interst you pay on the unit that you can already write off.
Also on the plus side, once you have been in the house or apartment for 45 days, you can take out equity on your home through a home equity loan of credit. Also, you could earn passive income by renting out your home or condominium, and some cooperatives permit sublets, although they often charge high fees.
On the minus side of owning, if it’s a house, there are many additional costs for keeping up the property, like maintaining the lawn, snow and leaf removal, and managing the septic system. You could also be faced with big-ticket bills on things that can go wrong, like the furnace, roof, plumbing, a major storm, or even a tree falling onto your house.
Those looking to own a property for the medium- to long-term should not worry too much about fluctuations in property value.
National real estate prices in the short term, according to Moody’ Analytics, are likely to decline 5% to 10% from the peak that they reached in the second quarter of 2022, Fortune reports. So far, they are down about 2%.
It’s the long-term view that makes owning a home so desirable. As U.S. News & World Report puts it, “If this is the place where you want to settle down, raise your children or set down roots, a community you want to join and a property you can customize and make your own, then you should not worry about timing the market perfectly.
“If you can see yourself being happy there for many years, the profit you make on the sale sometime down the road becomes less important.”
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