The Inside Outside Guys: Rent or buy?
It is the American Dream to own your own home and a piece of land on which it sits.
It was once speculated that one of the reasons this country does not lose military conflicts was tied to the belief we have more to lose than most throughout the world.
Indeed, what percentage of all the people who ever walked the face of this Earth have had the opportunities we have regarding homeownership?
We are in the midst of a decades-long housing shortage. New housing starts do not begin to keep up with demand in most parts of the country.
Land developers were once placed on a plateau next to oil speculators as high risk could lead to high rewards or bankruptcy. The cost and risk associated with developing lots we can build on has kept many players out of the game since the debacle of the early part of this century where developers, a few years and many dollars into developing a parcel of build-able lots, lost it all when the market collapsed.
State and local bureaucracies also conspire to make land development a long, costly, and high-risk endeavor.
We are caught in a supply-demand curve that seems to favor those who already own, whether it is a detached single-family home or a multi-family development where renters occupy the dwellings.
The median monthly asking rent for a single family unit in the United States topped $2,000 for the first time this year, representing a 15% year-over-year increase.
At the same time, median existing home sale prices increased 11% year over year to nearly $404,000.
From an investor’s perspective, this caps 125 consecutive months of year-over-year price escalations.
So, do you jump on the proverbial bandwagon and purchase that next home, or do you rent for a few years and hope the market will stabilize?
The best answer is, “It depends.” Rent money is “gone-money”; you purchase the right to occupy a space for a month or a year and the money it costs you does not create any equity for you. Rents in good areas tend to escalate year-over-year, but you are not plowing the driveway, mowing the lawn or writing a big check for property taxes twice a year.
On the other hand, ownership may create equity for you, but the up-front costs are imposing; from an average or $50,000 in the first year of ownership in the Indianapolis, Indiana, area to $365,000 for the first year of ownership in San Francisco, California.
These numbers include an assumed 20%t down payment, property taxes, insurance and maintenance. They do not include the average $10,600 that the National Association of Home Builders, NAHB, tells us people will spend in the first year on home purchases that include everything from furniture and appliances to a new lawnmower.
There may be some relief in sight for buyers. The interest rate hikes of the past year have kept a lot of millennials out of the market. This has led to a 20% decrease in the sale of existing homes according to the National Association of Realtors, NAR. Unsold inventories are at a recent high of during three months.
Some strategy may also help buyers, who are advised to look at minimum three-year investments and to purchase the smallest, most affordable home you can find in the nicest neighborhood you can afford.
Nationally, we have enjoyed an average price appreciation of 3.8% every year on our housing, but we are cautioned to consider that every location includes variables that can either help stabilize prices or contribute to lowered property values.
Purchasing a home is an expensive proposition, but one that includes the freedom of ownership and equity-building over time while renting offers the freedom to relocate easily and not be over-burdened by additional monthly costs.
Which one's right for you becomes a question only you and your financial advisors can answer.
But, like food, everyone needs shelter and professional housing services like those you’ll find at insideoutsideguys.com
For housing advice and more, listen to the Inside Outside Guys every Saturday and Sunday on News/Talk 760, WJR-AM, from 10 a.m. to noon or contact us at insideoutsideguys.com.