Renting vs. Buying Now - A Mortgage Banker's Perspective

Another week closer to 2024 rate cuts ;-)

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If you’re like me, you probably have a lot of qualified buyers/clients sitting on the sidelines waiting for rates to drop.? While rates normalizing in inevitable, it’s going to take longer than expected given sticky inflation and an uncertain macro environment.? The market initially expected Fed rate cuts towards the end of 2023, and now the expectation has moved to the end of 2024 the earliest.?

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With the understanding that higher rates have impacted affordability and curtailed inventory, deals are still getting done!? @RobertReffkin recently mentioned there will always be 5 D’s that drive real estate, regardless of market cycle:? Diapers, Diplomas, Diamonds, Divorce & Death.? People start/grow families, students graduate and move out, couples get married and purchase a home together, couples get divorced and need new places to live, and unfortunately death is a part of life that often involves the sale of a home.

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With the aforementioned in mind, here are some bullets you can share with your social spheres and book of clients currently waiting to sell/buy:

Pros of selling in a higher interest rate environment:

1. Less competition – w/ fewer inventory, your property will stand out more, attracting serious buyers
2. Serious buyers – during a market downturn, buyers are often more motivated/better qualified, seeking good deals and prepared to move quickly
3. Potential for faster sales – motivated buyers and less competition can lead to quicker sales, cash deals, and reduced time on the market
4. Downsizing opportunities – if looking to downsize, a market downturn provides better purchasing power for a smaller property
5. Tax advantages – depending on circumstances, there are tax benefits/incentives associated with selling during a market downturn

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Pros of buying in a higher interest rate environment:

1. Lower prices/more value – purchase prices are lower/more stable, offering a chance to buy at a more affordable price before those on the sidelines drive prices back up
2. Negotiation power – some sellers are more willing to negotiate on price/terms, even rate buy-downs, giving buyers greater bargaining power
3. Less competition – with fewer qualified buyers in the market, the chance to stand out is greater presuming you meet the seller’s ask
4. Higher ROI – RE appreciates over time; buying in market downturn positions buyers to benefit from future property value increases, often at higher rates of return
5. Tax benefits – homeowners may qualify for tax deductions, mitigating IRS tax implications and providing financial advantages
6. Control & adaptability – homeownership offers payment stability, control over living space/personalization, and adaptability to changing needs like remote work

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Renting can offer flexibility, but it comes with downsides:

1. Financial drain – rent doesn’t contribute to ownership, making it a long-term expense w/out building equity
2. No ROI – renters miss out on property value appreciation, essentially ensuring zero financial gain
3. Limited control – renters have less control over their living space, w/ restrictions on customization and renovations
4. Vulnerability to rent hikes – the rental market can be unpredictable, subjecting tenants to frequent and substantial rent increases
5. Lack of tax benefits – homeowners enjoy tax deductions, while renters miss out on financial advantages
6. Stability concerns – renting may lead to frequent moves, impacting stability and a sense of community

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If you’d like to take it a step further and host a joint Rent vs. Buy webinar/seminar with your clients, let me know!? I have a homebuyer presentation deck prepared for these types of initiatives.

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Let’s make it happen!