We’re asked quite frequently, does it make more sense to rent or buy these days? We’ve all seen how interest rates have risen quite rapidly over the course of 2022. Some folks think it might be better to “wait it out” and wait until interest rates “come back down.” Well, I got some bad news - that might not ever happen! No one truly knows whether or not we will see rates come down to 2-3% again. Those rates were extremely low historically speaking. While we might be experiencing some sticker shock with the rapid normalization of rates (back to 6-7%), we may just have to accept that we are just “back to normal.” “I’m currently renting and I don’t know if it makes sense to buy right now.”
Let’s look at a few scenarios… Let’s say you buy now and rates go up even further! Well, that would be good for you because you locked in a rate before it went up more! If you had opted to wait it out and see where interest rates headed, you might have even less of an opportunity to buy in the future! Okay, but what if you buy now and rates go down? Not to worry! You’ll always have the option to refinance and lower your rate!
The real question you should ask yourself is, do I want the benefits of home ownership - or do I want to keep renting? Can I upgrade my living situation for myself and my family if I buy a house? Can I improve my standard of living if I own a house? Or do I prefer to be bound by the terms of a lease and live in a residence that I cannot call my own?
There are many benefits to homeownership (even with higher interest rates!)
Believe it or not, your mortgage payment could actually be less than your rent payment! For example, the mortgage payment on a $200,000 starter home with a 20% down payment and 6.5% interest is only going to be around $1,450 per month! You might have to pay $1600 per month in rent to live in that same house!
If you have a 30-year fixed mortgage, your payment will stay roughly the same for the course of the loan. If you rent, your landlord can, and probably will increase your monthly rent at the end of your lease!
Debt paydown - equity buildup! When you pay a mortgage payment, a portion of your payment goes towards loan pay down. When you go to sell your house down the road, you get to “recapture” that equity buildup! When you rent, you do not gain this long-term benefit!
Appreciation… Clarksville in particular experienced massive appreciation gains over the last couple of years. A $200,000 house last year could easily be worth $240,000 now! If you rent, you do not get this massive benefit. In the grand scheme of things, how much of a difference does a higher interest rate make when you could benefit from that much appreciation?
Lastly, whether you rent or own, you’re paying someone’s mortgage - might as well be your own! You may think you’re avoiding the cost of higher interest rates but guess what? Landlords pass on the higher costs to renters in the form of annual rent increases! With a national housing shortage, homeowners wield all of the power.
True, it is more expensive to buy a home today than it was 6 months ago… However, the long-term benefits far outweigh the short-term pain we might feel with these higher rates. If you can qualify for a mortgage, it might be better for you to own rather than rent. According to CNBC, the median net worth of a homeowner far exceeded that of a renter. In 2019, the median homeowner was worth $255,000 while the median renter was worth only $6,300! It is no secret that home ownership is a foundational wealth-building tool. In sum, don’t let rates distract you from the great benefits of owning a home!
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