Everyone has a monthly housing expense whether one owns or rents. The question is how that expense will change in the future.
With homeownership, that monthly housing expense is locked in (for the most part) for the length of the mortgage. When renting, the housing expense is impacted by movements in the supply and demand for rental properties.
Historically, residential rental rates have increased by 3.2% on annually. However, in the current housing environment, there is an increasing demand for residential rental properties. This increase in demand has dramatically impacted rates. A recent report has revealed U.S. rental rates increased by 4.5% over the last 12 months. Other studies have projected 4-5% rental rate increases for the next few years.
The only way to have control of your housing expense is to buy.
But Isn’t Buying A Lot More Expensive Than Renting?
Not right now! With home sale prices down and mortgage rates at historic lows, it is less expensive to buy than rent in most areas.
According to Economist Jed Kolko, “…Buying remains cheaper than renting in all 100 large metros. Even buyers who can’t get today’s lowest mortgage rates will still find that buying makes more financial sense than renting in nearly all local markets.”
However, Kolko went on to say that this opportunity may soon disappear: “Although buying a home is still cheaper than renting, the gap is closing. In 2013, home prices should rise faster than rents, and mortgage rates are likely to rise in the next year as the economy improves. By next year, buying could be more expensive than renting in some housing markets, even for people with the best credit.”
Again, the only way to lock-in your monthly housing expense is to take that decision out of the hands of a landlord by owning. With both prices and interest rates set to increase, the best time to buy is right now.
Article courtesy of The KCM Blog.