Buying a home is now more affordable than renting in most places, but there could be changes on the way.
According to the ATTOM Data Solutions 2017 Rental Affordability Report, which analyzed data from 540 counties nationwide, buying a home is the more affordable housing option in 66 percent of the markets, up from 58 percent last year. However, the potential for rising interest rates this year could put up barriers to buying a home and keep potential homeowners renting.
Here’s what you need to know about the current real estate market and what to look for as the year goes on.
BUYING BEATS RENTING MOST OF THE TIME
In the long term, buying is recommended over renting because your mortgage payments build equity in your home (that you will eventually own), while the rent you’re paying only goes towards maintenance and your landlord’s wallet. In today’s real estate market, the monthly costs of buying are also preferable to renting.
From the ATTOM Data Solutions 2017 Rental Affordability Report, the monthly cost of buying an average home in the United States, including: insurance, taxes, and the mortgage payment, is more affordable than paying monthly rent on a simple 3 bedroom home in 354 counties out of the 540 that were analyzed. These 354 counties are home to many populated cities including: Chicago, Phoenix, and Las Vegas.
Even when renting is an affordable option, buying a home is often more affordable in the long run. For example, Anderson County, TN, is one of the most affordable rental markets listed in the report, requiring 25.1 percent of an average wage for housing costs each month. Yet buying in this county only requires 16.4 percent of average wages, making it much more affordable. Crazy right?!
WHERE RENTING IS MORE AFFORDABLE
According to the report, renting is more affordable than buying in just 186 analyzed counties. These 186 counties include major cities like Los Angeles and Seattle. However, in many of the counties the cost of living is much greater therefore, homes are much more expensive. Although, the cost for either option is so high that it only makes renting slightly more cost-effective.
For example, the report found it’s more affordable to rent than buy in most counties of both New York City and San Francisco, two of the most notoriously expensive rental markets in the country. The cost to buy a median-priced home in Kings County (Brooklyn), New York and San Francisco County, California approach or exceed 100 percent of average wages. While this isn’t the case in every market, a combination of high overall housing costs, lack of inventory and stagnant wages in these areas make housing decisions much more difficult.
HOUSING COSTS ARE RISING FASTER THAN WAGES
These numbers are very tricky because traditional budget advice says you should spend no more than 30% of your income on your home. However, housing now demands an average of 38% of the resident’s income according to the report.
Also, the report states that the costs of both buying and renting a home are rising faster than the majority of wages nationwide. Home prices rose 5.7 percent in the last year and rental costs rose 4.2 percent, while wages have only increased 2.2 percent since the second quarter of 2016. This means higher home costs and less money to pay them.
With the possibility of interest rate increases in 2017 and the question of how the real estate market will react under a new president, those ready to buy now should try and close their deals soon. For those unsure, it’s time to reach your decision: do you want to continue renting this year or settle down in a home? Some experts predict more rental availability in 2017, which could lower costs, but you should do your best to bring your housing costs down to 30 percent of your budget regardless of which option you choose. Whether it’s a 30-year mortgage or a one-year lease, you don’t want to be stuck paying more than you can afford.
“Buying a Home vs. Renting in 2017.” ThinkGlink. N.p., n.d. Web. 28 May 2017.
“Buying a House Pros and Cons: Renting vs. Buying – Minimalism is Simple.” Minimalism is Simple Easy Minimalist Lifestyle Tips. N.p., 17 Dec. 2012. Web. 28 May 2017.
“Buying More Affordable than Renting in 66 Percent of U.S. Housing Markets.” Newsroom and Media Center. N.p., 05 Jan. 2017. Web. 28 May 2017.