Owning a Home is Cheaper than Renting All Over the Country

It comes across the mind of renters every year or so, once their lease is up yet again.  

"Should I keep on renting, or should I consider buying a home?"

Buying a home is an investment, to be certain, but according to recent studies, the vast majority of Americans agree that property investment is the best investment an individual can make.  

In a recent KCM blog which rebuffs the Wall Street Journal's article stating otherwise, it is clear that buying is still cheaper than renting.

The Facts and Figures on Renting vs. Buying

Zillow analyzed the 35 largest largest metro areas in the first quarter, and in every area, it would be cheaper to buy than rent if you plan to live in the home for at least 4.2 years.  In fact, in Chicago it would take the average homeowner only 2.3 years of living in a home in order for your prices to remain cheaper.

"Rents keep rising, and mortgage interest rates remain very low, which is helping to skew the rent vs. buy decision toward buying for those who can afford it. Many renters may ask themselves why renew a lease, when you can break even on the same home in less time in many areas," said Zillow Chief Economist Dr. Stan Humphries.

Trulia concurs with these findings, adding:

“Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas. Rising mortgage rates and home prices have narrowed the gap over the past year, though rates have recently dropped and price gains are slowing. Now, at a 30-year fixed rate of 4.5%, buying is 38% cheaper than renting nationally.” 

But don't homeowners have added living expenses?

Some argue that homeowners have more expenses to pay, such as property taxes, homeowners insurance, and maintenance costs.  While this is true on the surface level - no, renters are not explicitly paying those expenses - monthly rent is almost always designed to help the property owner cover these expenses in full.  

True, there are sometimes large maintenance headaches that landlords have to deal with (which is why landlords are recommended to have a reserve fund for their properties), but for the most part it breaks almost entirely even.

Housing is a Leveraged Investment

Return on investment is of big interest for prospective homeowners.  Are homeowners really able to make a valuable return on their investment?  Would money spent invested into a home be better distributed elsewhere, such as in stocks or bonds?

Eric Belsky, Managing Director of the Joint Center of Housing Studies at Harvard University, answers this quite astutely:

“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

The leverage factor is likely one of the reasons owning property has been reported to be the best investment in America.

In short?

The transition from renting to buying is one that has been shown to yield positive financial effects, particularly when you plan on staying in that property over an extended period of time.  It is absolutely an investment worth making.

Need help finding your first home?  Unsure whether or not you will be able to make the leap from renting to buying?  Don't hesitate to send us an email or give us a call, and we'll be happy to help you!

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