Renters all over the US are facing the pressure of rising monthly rent. According to reports on Zillow.com, the median monthly rental price in the state of Georgia rose from $1,575 in January of 2021 to $1,950 in January of 2022 – a $375 increase. As inflation skyrockets on groceries, gas, and other essentials, many landlords are increasing their rates to keep their income on pace with the cost of living. Although rent and other commodities are going up, renters may not receive the same rise in income, making it difficult to cover all their expenses.
If you currently rent a house or apartment, you may be dreaming about owning your own place. However, the housing market is also experiencing heavy inflation. On top of that, interest rates are rising, and it is becoming more expensive to borrow money. If you are not sure what to do, this article is for you. We will break down 5 factors to help you decide whether to buy or keep renting.
1. Owning a home builds wealth
When you own a home with a fixed-rate mortgage, you typically pay the same amount every month for your loan, interest, property taxes, and homeowner’s insurance. As the market and economy shifts, your payment does not change. Plus, as you pay back small portions of your loan over time, you are building equity in your home. In addition, the mortgage interest you pay is tax deductible, meaning you may free up more money at the end of each year.
On the other hand, renters are seeing increased rates year after year, and they do not build any equity from their payments. When they are ready to move, they do not have any equity to sell. CNBC reports that the median net worth of U.S. homeowners is 40 times the net worth of renters. Even if you start small, the long-term gains of homeownership are substantial.
2. Home prices are still rising
Housing costs have increased dramatically over the past two years, and they are still on the rise. Record-low inventory is paired with sky-high demand, creating a volatile seller’s market in which homes are selling for thousands over the listing price. This market is scaring many buyers away, especially those who cannot compete against cash offers and wealthy investment firms. However, experts say that it will take years before inventory catches up with demand, and while the price growth may slow down, it will not crash in the foreseeable future.
With this in mind, buyers may want to purchase a home sooner rather than later. As prices go up, the location, size, features, and amenities that buyers want may soon be out of their price range. In many cases, first-time home buyers will have to compromise on their wish list and turn some of their “needs” into “nice-to-haves.”
3. Interest rates are going up
It is no secret that interest rates are increasing from the all-time lows that had buyers in a frenzy these past couple of years. Forbes states that the rates for a 30-year fixed mortgage have reached 5.09% as of early June 2022, compared to 2.99% last year. Economists expect the rates to continue rising to 5.5% or higher before declining. Despite the rising rates, mortgages are still cheaper than they were in the early 2000’s, when the yearly average ranged from 5.04% to 8.05%.
What does this mean? An interest rate is simply the cost of borrowing money, which affects the amount home buyers can afford to spend. As rates go up, your house budget will likely go down. For some renters, rising interest rates are a reason to buy now, since they may soon be priced out of the market completely. Be sure to consult a lender first and weigh the various loan options available to you.
4. You can still make smart decisions in a competitive market
Contrary to what some buyers believe, purchasing a home in a seller’s market is not automatically a bad decision. Inflation and competition are significant setbacks, but buyers can still make smart decisions that achieve their personal and financial goals.
For example, do not empty your savings on buying a home. Lenders will often give you a maximum budget amount based on your income and assets, but it is not always a good idea to spend the maximum. Aim for a low monthly payment, and keep enough money in your bank account for an emergency fund after you have paid your down payment and closing costs.
Never skip the inspection. You may want to make your offer more competitive by accepting a home as-is, but hidden problems can lead to huge repair costs. Hire a licensed, professional home inspector to thoroughly analyze the condition of the home before you buy.
Lastly, remember that home ownership comes with more responsibility than renting. All of the maintenance, repairs, and renovations are up to you. Over the course of owning your home, you may have to repair leaks, replace major appliances, keep up with landscaping, hire pest control, and more. Make sure you are financially prepared for these costs before buying a home.
5. “Perfect timing” matters less if you stay in your home longer
It is true that the economy may change and the housing market may flip. It is natural for the market to fluctuate from year to year, but over time, prices will continue to appreciate. Consider your personal goals and long-term plans. If you think you may want to move to a new location in the near future, you may want to hold off on buying a home. For those who are ready and willing to keep their home longer, changes in the market will not matter. If “perfect timing” is the only thing you are waiting for to buy a house, you may never reach your goal.
Becoming a homeowner
If you are mentally and financially ready to buy a home, now is the time to buy. Renters will always be susceptible to a changing economy, but homeowners enjoy more stable costs of living. In a competitive market like the one we see today, it is easy to put off your goals. However, homeownership may be more attainable than you think.
According to the NerdWallet 2020 Home Buyer Report, 62% of Americans think they need a 20% down payment in order to purchase a home. For young adults and first-time home buyers, that is a lot of cash. Luckily, there are several financing options that do not require that 20% out of your pocket. In fact, some government-backed loans require zero down payment. As long as you have maintained good credit and a steady income, you have a good chance of qualifying for a mortgage.
Ready to get started? Reach out to a local lender to talk about the best loan options for your financial goals. Once you have a budget in mind, contact one of your local real estate experts at Sheridan Solomon & Associates. Our agents are well-equipped to help you navigate the housing market and find a home you love within your budget. Just head to our website at sheridansolomon.com.