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Food For Thought - Renting vs Buying a Home

Updated: Jun 25, 2023

Does this sound like the story of your home buying experience? From 2020 to late 2022 (and even somewhat today in mid-2023), competition in the real estate market was fierce and many people, especially first-time homebuyers, were outbid when trying to purchase a home. This forced many renters to continue to rent because they could not compete in the housing market against corporations or current homeowners. Corporations already had deep pockets to begin with and those who owned homes during this timeframe now had significantly more equity in their homes. These two groups now had vastly stronger buying power and could drastically outbid others even when going above the list price of a home. They did not have to worry about paying the difference in cash if the appraised value was below the purchase price because they had so much equity available.


When rates were between 2% and 4% during that time, I heard people say they were going to wait for the market to crash because exponentially increasing home prices was not sustainable. As of the writing of this post, the market has yet to crash and home prices are still increasing. Rates are now bouncing between high 5s and low 7s. That same group of people that was waiting for the housing market to crash is now saying they are waiting for rates to drop back to "normal" (just as an FYI: historical normal is 7%). Without exception, every single lender that I have talked to (and I have talked to many) say they do not predict rates will drop below 5% any time soon (think years).


It was true, however, that the low interest rates and rapidly increasing home prices were unsustainable. We are now experiencing economic pains in the form of record breaking inflation. The "high" (a/k/a normal) mortgage interest rates and high home prices (which are projected to continue to increase) are essentially back to normal. It is inflation that has caused the hard earned dollar to not go as far. This makes it painful when looking to purchase a home because the cost of living has increased while the buyers' income has (most likely) not increased at that same rate.


So, what is a prospective homebuyer supposed to do now? The answer: INVEST IN THEIR FUTURE. The cold hard truth is that you are either paying for someone else's mortgage or you are paying for your mortgage. The median rent in the North Atlanta Metro Area is $2,600. This means a renter will be investing $31,200 in someone else's future instead of their own for every year they rent. When the lease is up, the renter has nothing to show for it; their return on investment is 0%. Renters could have been homeowners and invested in their future. They would have had the $31,200 they used for renting PLUS the appreciated value of a home, which is approximately 3% - 4% per year in their pocket for a total of $47,700 ($31,200 + $16,500 [the conservative 3% appreciation of a $550,000 house]).

A chart showing the home value increasing over 3 years.
Appreciation in Home Value Over 3 Years.

Even if the interest rates drop, the drop will not offset the amount resulting from increased appreciation and the loss in rent. Let us assume the rates will drop by nearly 1% (which doesn't sound like a lot, but in actuality is a fairly large drop) over the next 3 years. The renter will now have spent over $100,000 on rent (remember, rent increases yearly) and they will end up with a nearly identical monthly payment and closing costs! The renter will be in the same position as they would have been in if they have bought 3 years ago...minus the over $100,000 they could have had invested in a home and the $53,532 in missed appreciation of the home. That is over a $150,000 missed investment!

A chart showing the cost of waiting and that the cost of waiting will result in the same monthly payment if you wait 3 years for rates to drop.
You end up paying nearly the same amount if you wait 3 years, but now you have lost over $100,000.

But what if the market crashes later? No one wants to be underwater! This is not likely to happen and, as we will see, is not a major concern. These historical graphs will answer that question.

Chart illustrating the performance of the Dow Jones Industrial Average (DJIA) from 2010 and beyond.
Chart illustrating the performance of the Dow Jones Industrial Average (DJIA) from 2010 and beyond. https://www.macrotrends.net/1358/dow-jones-industrial-average-last-10-years

Median sales price of homes in Georgia dating back to 2010 with the median home price increasing.
Median sales price of homes in Georgia dating back to 2010.

They look pretty similar, right? The difference is that the housing market actually appears MORE steady. Even with the housing crash of 2008/2009, plenty of people were able to keep their homes and those homes increased drastically in value over time. Even more importantly, homeowners were able to pull the gained equity when the time was right to purchase a new home or invest in additional properties when the market was prime for buying and investing.


You are not throwing money away when you purchase a home. You have to ask yourself: do you want to be in the same place as you were before the market shifted drastically? Renting, with ZERO return on investment and going up against homeowners who now have even more equity in their pockets? Or do you want to be the person who has invested in themselves and is poised and ready to make a move when the market is favorable?


Waiting for a "market crash" or hoping for "favorable" interest rates might seem tempting, but let's take a closer look at the bigger picture. In reality, home prices are on the rise and interest rates, although they may seem high, are actually quite normal. Don't be discouraged because things are just back to normal! Investing in your future is still the smartest move you can make. Think about it this way: when you rent, you are essentially paying off someone else's mortgage without any return on investment for yourself and when you become a homeowner, you start building equity and can benefit from the appreciation of your home. Even if interest rates were to drop, it wouldn't make up for the losses incurred through renting and missed opportunities for home appreciation. History has shown us that the housing market is a safe and sound investment.


By taking the leap into homeownership, you're setting yourself up for a brighter future. So, the decision is yours: stay stuck in one place or seize the opportunity to build wealth and be ready to make a move when the perfect moment arises. The choice is clear, and it's all about investing in yourself and your dreams.


Reach out to me and let's start your journey to financial freedom and investing in your future. You can reach me at 847-507-7126 or email me at grahamwitt@kw.com. I look forward to hearing from you soon.

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