Owning Your Home

For those that are debating between buying and renting this year, waiting could cost you. Many potential buyers have paused their plans of buying because of the increase in home prices and mortgage rates. However, there is something that these buyers should consider in 2022. According to the Rental Affordability Report for 2022, renting is still more expensive long-term than owning your home. In fact, in the majority of the country, it is more affordable to own a home, even with maintenance and taxes. Not to mention, you are gaining equity in your investment at record rates as home prices continue to increase. Here is why owning your home is more affordable than you think in 2022.

Why Owning Your Home Is Affordable

According to the same Rental Affordability Report,

“. . . Owning a median-priced home is more affordable than the average renton a three-bedroom property in 666, or 58 percent, of the 1,154 U.S. counties analyzed for the report. That means major home ownership expenses consume a smaller portion of average local wages than renting.”

Not only does this Report mention the true affordability of homeownership, but other reports and experts are harping this same point home. Other experts in the industry similar insights on renting in 2022. According to the Single-Family Rent Index from CoreLogic, rents for homes considered single-family grew faster, on average, than home prices. In fact, over the past 16 years, rents have increased faster than home prices in almost every situation.

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More Expert Affordability Insights

According to Molly Boesel, Economist at CoreLogic,

“Single-family rent growth hit its sixth consecutive record high. . . . Annual rent growth . . . was more than three times that of a year earlier. Rent growth should continue to be robust in the near term, especially as the labor market continues to improve.”

Rents look to continue to increase dramatically over the next few years. What people often do not realize is that buying a home locks in a mortgage rate and monthly payment. If someone does not refinance, they will pay close to the same amount per month for the next 15-30 years. This is why real estate often times ends up as an inflation hedge. As the cost of everything goes up, being able to have a fixed monthly expense for shelter allows you to adjust your budget for other increases.

Owning Your Home

While everyone continues to talk about record high home prices and rents, as well as mortgage rates increasing, there is good reason. For potential buyers in this market, rising rates and prices are not enough to deter someone from buying. In fact, the mortgage rates are still lower than they have been on average this decade. And, not to mention, they are historically low compared to every other point in real estate history. There is no reason to be scared by mortgage rates that are above 3%. According to the graph above, however, rents are increasing faster than the cost to borrow. The biggest reason that owning your home is more affordable than renting is because of our favorite thing, equity.

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Mortgage Rates Have Continued to Stay Around 3% In 2021

Instead of buying into your landlord’s long-term investment strategy, you should buy into the long-term investment strategy of your own. Owning your home is considered the best investment in the long-term, beating out stocks, metals, and bonds. Mortgages are a form of forced savings, and I have continuously told people that your mortgage is a illiquid savings account. Over time, you pay into this “account” and gain equity that you can use to your advantage later on. Having equity in your home is one of the quickest ways to build net worth on paper, and this allows you to have many different options.

Think about what Todd Teta, Chief Product Officer at ATTOM Data, the company who wrote the aforementioned Rental Report, says:

“. . . Home ownership still remains the more affordable option for average workers in a majority of the country because it still takes up a smaller portion of their pay.”