Rent or Buy: Either Way You’re Paying A Mortgage

There are some renters that have not yet purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent free, you are paying a mortgage – either your mortgage or your landlord’s.

As The Joint Center for Housing Studies at Harvard University explains:

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return.  

That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Christina Boyle, a Senior Vice President, Head of Single-Family Sales & Relationship Management at Freddie Mac, explains another benefit of securing a mortgage vs. paying rent:

“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”

As an owner, your mortgage payment is a form of ‘forced savings’ that allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee your landlord is the person with that equity.

The graph below shows the widening gap in net worth between a homeowner and a renter:

Rent or Buy: Either Way You’re Paying A Mortgage | Keeping Current Matters

Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, owning might make more sense than renting with home values and interest rates projected to climb.

 

Presented as a public service by Joe Peters of Weichert, Realtors.

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Don’t Be Fooled… Homeownership Is A Great Investment !!!

Don’t Be Fooled… Homeownership Is A Great Investment!

Dont-Be-Fooled

Some Highlights:

  • Harvard University’s Joint Center of Housing Studies recently released the top financial & emotional reasons to own a home.
  • Owning is a good way to build up wealth that can be passed along to your family as it is usually a form of “forced savings.”
  • You’re paying for a house whether you own or rent, but owning gives you control over your living space.

 

Presented as a public service by Joe Peters of Weichert, Realtors.

Meet Joe Peters
View my latest monthly real estate newsletter for Hunterdon and Somerset County

ask_joe.jpg

Over 20 pages of expert guidance on the latest marketing trends

and methods for buying or selling your home by available here.

Harvard: Why Owning A Home Makes Sense Financially

Harvard: Why Owning A Home Makes Sense Financially

Posted: 01 Feb 2016 04:00 AM PST

We have reported many times that the American Dream of homeownership is alive and well. The personal reasons to own differ for each buyer, with many basic similarities. Eric Belsky, the Managing Director of the Joint Center of Housing Studies at Harvard University expanded on the top 5 financial benefits of homeownership in his paper –The Dream Lives On: the Future of Homeownership in America. Here are the five reasons, each followed by an excerpt from the study: 

1.) Housing is typically the one leveraged investment available.

“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.”

2.) You’re paying for housing whether you own or rent.

“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.” 

3.) Owning is usually a form of “forced savings”.

“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

4.) There are substantial tax benefits to owning.

“Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”

5.) Owning is a hedge against inflation.

“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”

Bottom Line

We realize that homeownership makes sense for many Americans for an assortment of social and family reasons. It also makes sense financially. If you are considering a purchase this year, contact a local professional who can help evaluate your ability to do so.

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Rents Still Skyrocketing!

Rents Still Skyrocketing

Posted: 20 Jan 2016 04:00 AM PST

Zillow recently revealed that the 43 million renter households in the US spent $535 billion on rent in 2015. Aggregate numbers like these often make it difficult to truly assess a situation. For more clarity, we want to share some points that were made in a Wall Street Journal article earlier this month. The article made two important points:

1. Rents are increasing faster than the last several years:

 “Apartment rents increased faster last year than at any time since 2007.”

2. Rent increases are accelerating

“Another report from Axiometrics Inc., a Dallas-based apartment research company, showed that rents increased 4.7% in the fourth quarter compared with the same quarter a year earlier, the strongest year-end performance since 2005”.

Here is a graph to illustrate the rate of increase over the last several years:

Rent-prices

Joe Peters shows rent prices skyrocketing

 

 

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When Is It A Good Time To Rent? NOT Now!

People often ask whether or not now is a good time to buy a home. No one ever asks when a good time to rent is. However, we want to make certain that everyone understands that today is NOT a good time to rent.

The Census Bureau recently released their third quarter median rent numbers. Here is a graph showing rent increases from 1988 until today:

Median Asking Rents | Keeping Current Matters

A recent Wall Street Journal article reports that rents rose “faster last year than at any time since 2007, a boon for landlords but one that has stoked concerns about housing affordability for renters.”

 The article also cited results from a recent Reis Inc report which revealed that average effective rents rose 4.6% in 2015, the biggest gain since before the recession. Over the past 15 years, rents have risen at a rate of 2.7% annually.

Where are rents headed?

Jonathan Smoke, Chief Economist at realtor.com recently warned that:

“Low rental vacancies and a lack of new rental construction are pushing up rents, and we expect that they’ll outpace home price appreciation in the year ahead.” 

Bottom Line

According to the WSJ article:

“In general, the higher rents go, the more difficult it will be for young people to save for down payments, making them likely to rent even longer.”

One way to protect yourself from rising rents is to lock in your housing expense by buying a home. If you are ready and willing to buy, meet with a local real estate professional who can help determine if you are able to today!

 

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