By Ron Austin, Sable Homes General Manager
Renting versus buying is a hot debate right now! This is especially true for young professionals who are caught between rising rental rates and the upfront costs of buying a home compounded with changes in mortgage rates. How does one make the decision between renting or buying? When renting you avoid hidden home ownership costs such as maintenance, taxes and added utilities. You also do not require the commitment of purchasing a home as a more permanent housing option. However, when you buy a home your mortgage payments and extra costs could be lower than the rising costs of renting. You also gain the freedom to do as you wish with your space, and many times home ownership allows for more space than rentals will. Decisions, decisions.
Ron Throupe, an associate professor of real estate at the University of Denver, says the biggest mistake future home buyers make is comparing a month’s rent to a month’s mortgage payment. A home payment is not simply a mortgage payment. Rather it includes a mortgage payment, utilities, and other extra factors to consider.
Throupe says, “Many people don’t have all the numbers. There are many additional fees you need to include to make a fair comparison: the principal interest, property taxes, property insurance, homeowner’s association fees and maintenance” (USNews). There are many factors that come into play with the decision to rent or buy, and while renting is low maintenance and noncommittal, many times buying is a better option, especially with the hikes in rental rates. In the past five years, a typical rent rose 15% while the income of renters grew by only 11%. (RealtorAssociation).
The trends as of late show an increase in demand for homes, with limited supply. As noted by the Realtor Association, “A way to relieve housing costs is to increase the supply of new home construction – particularly to entry-level buyers. Builders have been hesitant since the recession to add supply because of rising construction costs, limited access to credit from local lenders and concerns about the re-emergence of younger buyers.”
Many young professionals are seeing the benefit in home ownership over renting despite the competitive supply of homes. The transition from renters to buyers is articulated in a study by Trulia which shows a significant increase in renters who have the intention of buying. This study cited the “top three reasons why they want to purchase a home”
- 49 percent say they like being able to call themselves home owners.
- 44 percent say they view home ownership as a good financial investment.
- 36 percent say they need more space for their family and children. (RealtorMag)
The decision between renting and buying includes many facets and factors that come into play. Regardless of one’s housing choices, it is certain that the housing market is on an upswing, and it is likely that we will continue to see growth both in the rental market as well as in new home investments.