The media are scaring the sh*t out of potential buyers again!
And another myth they are peddling is that it is now far better to rent than it is to own.
I pounded this topic as recently as July – Rent vs. Buy Analysis In A High Rate Environment = Utter Nonsense – but am hitting it again because the topic is surfacing everywhere in response to the recent rate increases (as illuminated by MBS Highway today).
MBS Highway pointed out that it was Realtor.com surprisingly that just made the strongest case for renting with this article: Renting Beats Buying In All But Three of the Largest Metros.
MBS Highway shredded the Realtor.com analysis by pointing out what Realtor.com was missing. They did a comparison over 9 years and, amusingly, even used some worse assumptions such as a higher interest rate, higher property taxes, and much higher transaction costs when the property eventually sells.
MBS Highway pointed out that even though the total housing payment for a $456,000 home was $1,100 more per month for the buyer, compared to the rental rate, the buyers were still better off by $130,000 after 9 years.
I won’t show the entire analysis here, but buyers, with their agent’s or our help, can do their own analyses with the rent vs. buy tool provided by Realtor.com: Rent or Buy Calculator.
- Few People Will Keep Their Current Interest Rate. I know the Fed says “rates higher for longer…” but there is no way we avoid a recession at some point. And rates will fall. And everyone will refinance into much lower rates and instantly make their decision to buy that much more advantageous.
- Housing Payments Are Fixed While Rent Goes Up Every Year. This factor too cannot be overstated, and it is why homeowners in it for the long haul always end up way better off. I share a tweet at the bottom of the blog that drives this point home.
- Appreciation of Home. MBS Highway used a 4% projected rate, but we often use even lower rates, and our analyses still put buying over renting. But, more importantly, people almost always underestimate the rate of appreciation.
- Length of Time In Home. “The median home tenure is 13 years now, a three-year increase over the last decade.” And, the longer a buyer stays in a home, the more it makes sense to buy.
- Tax Benefits. Interest and property taxes are tax deductible (while rent is not), and the tax savings are often higher than most renters realize.
- Part of the Housing Payment Is Amortization. This factor is huge, as buyers need to remember that their entire housing payment is not just an “expense;” a big chunk of their payment pays down their mortgage increasing their equity – which they get back when they sell. In the MBS Highway example, the amortization was almost $50,000 over 9 years.
- Forced Retirement Savings. This is related to #6 above, but a housing payment is one of the best “forced retirement savings” plans there is. I blog often about friends I have who bought 40 years ago and are now retired on the millions of equity they have accumulated.
- INFLATION. Yes, I think we will see a recession and inflation tamed… in the short run. BUT, over the long haul, there is no way we will avoid significant inflation because we can’t avoid it and because our government needs it to inflate away our massive debt load. We have far more government debt than we can ever service with tax revenues alone – so money will have to be “printed” to service it (fostering significant inflation), and we face labor and commodity shortages that will only make inflation that much worse. And – rents go up with inflation while housing payments do not.
Below is the same tweet I shared in my July blog.
