Buying vs. Renting in a High-Interest Environment

In today's real estate landscape, choosing between buying and renting is a crucial decision that deserves careful consideration. Amidst the cacophony of alarming headlines predicting a housing market crash and global chaos, making the right choice for yourself and your family can seem daunting. But fear not; we're here to cut through the noise and provide you with the facts to make the best decision for yourself and your family.

In 2022, home prices saw a slight dip, but they've since stabilized. Historical patterns show that rates tend to drop during election years. The inflation numbers decreased from 8.20 last year to 3.70 this year. There is a significant progress. Top chief economists are predicting rate drops for next year. When rates get to anything below the 6% mark, many potential buyers who have been hesitant may rush into the market, leading to increased demand, multiple offers, and a possible rise in prices. It's a brilliant time to consider getting into the market now to avoid competing with many buyers.

Benefits of Home Ownership

Purchasing a home offers you the advantage of stabilizing your monthly housing expenses, eliminating the frustration of frequent rent increases. This financial stability is a significant benefit.

Essentially, the decision comes down to this: your housing payments can either be an investment in your future or your landlord's pocket.

Becoming a homeowner means you're investing in your long-term financial well-being. In contrast, renting means your money is spent without any potential return.

When you consider the typical appreciation of home values over time and the relief from unpredictable rent increases, homeownership can serve as a pathway to achieving financial security.

As Dr. Jessica Lautz, Deputy Chief Economist and VP of Research at the National Association of Realtors (NAR), puts it: 

“If a homebuyer is financially stable, able to manage monthly mortgage costs, and can handle the associated household maintenance expenses, then it makes sense to purchase a home.”

Over the last 60 years, data from the Federal Reserve shows a consistent trend: home prices have steadily increased. This increase in home values is a compelling reason to consider buying rather than renting. As home prices rise and you make mortgage paymentsyou buildng equity. Over time, this growing equity boosts your overall net worth.

The key takeaway here is that we have a shortage of homes, the population keeps growing, and homeownership has always been a fundamental part of the American dream. Even though the housing market may experience occasional downturns, if you can weather these challenges, home prices tend to appreciate in the long run, ultimately helping you build wealth.

Pros of Renting:

Flexibility: Move anytime without the hassle of selling a home.

Protection from Depreciation: Avoid being stuck in a home with a declining value.

Repairs are Covered: Landlord handles maintenance and repairs.

No Property Taxes: You don't receive property tax bills, although it might be indirectly included in rent.

Low Initial Costs: No need for a substantial down payment.

Cons of Renting:

No Equity Building: You won't build equity as you would with homeownership.

No Tax Deductions: Miss out on potential tax deductions available to homeowners.

Rental Price Unpredictability: Limited influence over rent hikes and rental agreement alterations.  It's worth noting that rapidly rising rents can lead to unpredictable monthly expenses and ongoing increases in rental costs.

Lack of Ownership: No permanent place to call your own.

No Investment Return: If you put money into improving the property, like upgrading the kitchen or making other enhancements, you're essentially increasing the landlord's equity, but you won't enjoy the rewards of your efforts.

Rents Are on the Rise

According to Iproperty management data: Rent prices have been rising faster than people's incomes since 1980, with an average increase of 8.85% per year. In 2021 the rental market was particularly turbulent, and this trend continues into 2022.

To give you an idea of the recent increases, from the first quarter of 2021 to the first quarter of 2022, the national average rent shot up by over 18%. As of August 2022, the typical monthly rent across the country stood at $1,388. If you're looking at the 50 largest cities in the U.S., the median rent in July 2022 was $1,879.

Pros of Buying A Home:

Potential for Equity Building: When you buy a home, you have the opportunity to build equity over time as you pay down your mortgage and your home's value appreciates, potentially increasing your wealth.

Tax Deductions: Homeowners may benefit from tax deductions on mortgage interest and property taxes, which can lead to significant savings on annual tax bills.

Control over Your Living Space: As a homeowner, you have the freedom to make changes to your home based on your liking without needing permission from a landlord.

Potential for a Return on Investment: Real estate often appreciates over the long term, offering the potential for a profitable investment when you eventuall home.

A Permanent Place to Call Your Own: Owning a home provides stability and security, giving you a permanent residence to call your own.

Cons Of Buying A Home:

Higher Upfront Costs (Down Payment & Closing Costs): Buying a home typically requires a substantial upfront investment, including down payment and various closing costs, which can be a financial challenge for many.

Responsibility for Maintenance and Repairs: Homeowners are responsible for the upkeep and maintenance of their properties, which can entail additional costs and time commitments.

Reduced Flexibility to Move Frequently: Homeownership can limit your ability to relocate quickly or frequently, as selling a home and buying a new one can be a lengthy and costly.

Risk of Home Value Depreciation: Although real estate generally appreciates, there's always a risk that your home's value could decline due to economic or market factors.

Risk of Foreclosure if Mortgage Payments Are Missed: If you can't make your mortgage payments, you risk losing your home to foreclosure, which can have severe financial consequences.

Home Values Are on the Rise

Amidst the gloomy headlines and conflicting information, home prices show a more stable and consistent appreciation, resembling a typical market scenario in contrast to the exaggerated appreciation we witnessed during the pandemic.

The Home Price Expectation Survey (HPES) by Pulsenomics is a collective effort involving input from more than 100 economists, investment experts, and housing market analysts. Their combined wisdom suggests an average price growth of 3.3% for the upcoming year.

Looking at the graph above, you'll see that the blue line, representing the average of these forecasts, aligns precisely with this 3.3% projection. While individual predictions can differ, the HPES survey and this average consensus paint a consistent picture. A 3.3% appreciation signifies a significant contrast to declining prices, offering a positive outlook for the housing market.

Over the last five years, investing in real estate in Los Angeles has proven to be a lucrative opportunity, with Zillow reporting a surge of over 30% in median listed home prices. Take advantage of the chance to capitalize on this growing market.

Conclusion:

The driving force behind these trends is the ongoing shortage of housing inventory, coupled with a persistent demand that continues to surpass available supply. The prices are rising whether you are buying or renting in Los Angeles.

Whether you're looking to buy or rent, we're here to provide a comprehensive, full-service real estate solution that caters to your every need. Let us be your trusted partner in achieving your real estate goals.