In many cases, it’s still more affordable to buy a home than rent one

If spending more time at home over the past year is making you really think hard about buying a home instead of renting one, you’re not alone. You may be wondering, however, if the dollars and cents add up in your favor as home prices continue to rise. That equation will most likely take into consideration monthly housing costs, tax advantages, and other incremental expenses. Using these measurements, recent studies show that it’s still more affordable to own than rent in most of the country. 

 

Here’s why:

ATTOM Data Solutions recently released the 2021 Rental Affordability Report, which states:

Owning a median-priced three-bedroom home is more affordable than renting a three-bedroom property in 572, or 63 percent of the 915 U.S. counties analyzed for the report.

That has happened even though median home prices have increased more than average rents over the past year in 83 percent of those counties and have risen more than wages in almost two-thirds of the nation.”

 

How is this possible?

The answer: historically low mortgage interest rates. Todd Teta, Chief Product Officer with ATTOM Data Solutions, explains:

“Home-prices are rising faster than rents and wages in a majority of the country. Yet, home ownership is still more affordable, as amazingly low mortgage rates that dropped below 3 percent are helping to keep the cost of rising home prices in check.

 

In 2020, mortgage rates reached all-time lows 16 times, and so far, they’re continuing to hover in low territory this year. These low rates are a big factor in driving affordability.

Teta also notes:

“It’s startling to see that kind of trend. But it shows how both the cost of renting has been relatively high compared to the cost of ownership and how declining interest rates are having a notable impact on the housing market and homeownership. The coming year is totally uncertain, amid so many questions connected to the Coronavirus pandemic and the broader economy. But right now, owning a home still appears to be a financially-sound choice for those who can afford it.”

 

According to Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae, “The share of renters who say it’s a good time to buy a home is now at its highest level in five years, suggesting favorable conditions for first-time homebuying, consistent with the recent rebound in home purchase activity.”

 

 

Financial advantages through home equity

There is, however, another financial advantage to owning a home that’s often forgotten in the analysis – the wealth built through equity when you own a home.

Odeta Kushi, Deputy Chief Economist for First American, discusses this point in a recent blog post. She explains:

“Once you include the equity benefit of price appreciation, owning made more financial sense than renting in 48 out of the 50 top markets, with the only exceptions being San Francisco and San Jose, Calif.”

 

CoreLogic, another property data curator, also weighed in on the subject. According to their latest Homeowner Equity Insights Report, the average homeowner gained $17,000 in equity in just the last year alone.

 

 

Homeownership is a tax break

One thing people who have never owned a home don’t always think about are the tax advantages of homeownership. The same article states:

“You have tax advantages. Many of the costs of owning a home—like property taxes—are tax deductible. And if you’re paying off a mortgage, you’ll get to count your mortgage interest as a deduction when you file your tax return.”

Whether you’re living in your first home or your fifth, it’s a huge financial advantage to have some tax relief tied to the interest you pay each year. It’s one thing you definitely don’t get when you’re renting. Be sure to work with a tax professional to get the best possible benefits on your annual return.

 

Bottom line

As you make your plans for the coming year, be sure to consider the equity benefits of home price appreciation as you weigh the financial advantages of buying over renting. Let’s connect today to discuss the options that match your budget and homeownership plans.

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About Keeley Mannila

As the co-founder and owner of Fred Real Estate Group, Keeley is the driving force behind company culture, branding, and creative marketing strategy.