A Realtors Perspective
What’s going on in this crazy housing market? Prices are rising so fast many buyers are getting priced out or simply giving up. But that begs the question is it any less expensive to rent? Which is better, rent vs buy in 2021.
Many will argue there’s a great big bubble building in the housing market, and although for different reasons, it sure feels reminiscent of 2008/2009 when it all came crashing down. Prices were rising so fast back then that investors were buying homes and turning around and selling them immediately for massive profits.
While the 2008/2009 housing bubble was bad, this time around it’s a little different.
2008/2009 financial Crisis
The 2008/2009 financial crisis was caused by lax regulatory oversight and some shady banking loan practices. I won’t go into detail here but with everything going on back then it wasn’t sustainable. There was a true housing bubble and it popped in a big way flooding the market with foreclosures and short sales.
For a time after the financial crisis of 2008/2009 it was actually cheaper to buy a house than it was to rent. It took until 2016 for the market to recover just to where it was before the crash. Before that and for awhile after 2016 it was a better financial decision to rent vs buy where you live.
Rent Vs Buy After 2008/2009 Recession
When I first got into real estate in 2009 a great way to get business was to convince people that it was cheaper to buy a house then it was to rent. It was true. At that time rent vs buy favored buying.
I would send postcards to apartment complexes and put notices on bulletin boards with pull off phone number tabs. People would call me to find out more giving me a chance to show them how they could buy a house and pay less in mortgage than they were paying in rent. And it was working. A lot of homeowners were created that way.
That was a great strategy that worked for years all the way up to 2017 and even somewhat into 2018. It started to get a little rougher into 2018. You could still find good deals occasionally, but it was getting more difficult.
Supply vs Demand
The party is now over. 2019 saw some significant increases in housing prices and then, of course, in 2020 and into 2021 prices exploded exploded even higher.
According to Black Knight, which is a company that collects housing data, this is the 18th consecutive month of home prices rising. They have increased 14.8 percent year over year. That’s the highest that housing prices have risen since Black Knight started keeping track in the in the mid 1990s. That means housing prices are rising even faster than leading up to the last recession.
If we all would have known this a year ago, we would have sunk all the money we had into real estate and sold it all today. We’d be rich!
Todays “housing bubble” is a little different. It’s happening because of a supply issue. There are not enough homes for sale to accommodate all the people that want to buy. The economic term is supply and demand. When there is not enough supply prices go up. More people competing for less product makes the product more valuable and able to be sold at a higher price.
The supply problem in the housing market is making it really difficult for buyers. Just about every house that comes on the market has multiple offers driving up prices. People are paying thousands of dollars over asking for a house and in many cases agreeing to pay over the appraised value.
This isn’t a bubble to pop. The only thing that will cool this overheated real estate market is more supply, or less demand. More homes for sale are desperately needed. While you can find any answer you want to hear by searching the internet many professional analysts see more increases in the near future, albeit not as steep. As long as consumers are willing to pay these prices they will continue to rise. At least until there are enough houses for everyone that wants one.
Rent Vs Buy
The average mortgage payment in America right now is $1487. The average rent in America is $1177.
The most expensive places to have a mortgage are Hawaii, California and New York, with an average of $1684. The cheapest places to have a mortgage are Iowa, Indiana and Arkansas, with an average mortgage payment of $978. With rent, the highest rent is in Hawaii, which didn’t surprise anybody at $1607 on average. The cheapest is West Virginia where you rent on average for $725.
So you can see that, everything else notwithstanding, it’s “cheaper” to rent.
Taking into consideration the benefits of owning a house like equity and getting to do what you want to it and the benefits of renting, like not having to take care of repairs and not having to worry about selling it may make a difference in the decision of rent vs buy.
Cashing Out For Equity
Is it a good time to cash out on your equity?
If you’ve been thinking about selling your house, now might be a good time to sell it to cash in on the equity that you’ve been building. Maybe you can rent for awhile until whatever is going to happen to this market happens. Something has to give. According to Black Knight, the current levels of home growth aren’t sustainable for an extended period of time.
So we’ve either got to stabilize this market or as a lot of youtubers have been predicting for the last five or six years, there’s going to be a market crash. They predicted a housing crash in 2017, 2018, 2019, 2020 and, of course, 2021, which still may happen but don’t hold your breath. Someday they’ll be right.
If you do decide to sell think it through and make sure you have plan. If you’re planning on selling and buying you could be spinning your wheels. It’s a great time to be a seller but not so much a buyer.
Rents are on the rise also. Be sure and research what the rents are in the area you would want to live.
To answer the rent vs buy question, overall right now, comparing dollar to dollar and monthly cash-flow it’s cheaper to rent.