Analyzing the cost of renting over purchasing

By
Real Estate Broker/Owner with Turn Key Real Estate 31RA0874656

I have been observing the current market and reading the 137 responses that I received from my previous column on Nov. 7. Although my survey isn’t comparable to any national survey via the Labor Dept. or any other government entity, it’s a small microcosm of the feelings of our local Long Island purchasing community who subscribe to my column.

It appears approximately 62% of my respondents think renting or staying in place is more advantageous than purchasing right now. It is based mainly on our current interest rates. which are causing the increase in their monthly payments. However, the readers also thought that prices were still too high and felt uneasy about the market, even though there currently is still historically low inventory that should keep prices strong.

From what I have researched, the double-digit increases are a thing of the past and we may just see 2-4% increases or possibly less, again partially affected by future demand. Although our inflation has decreased slightly, it’s the costs of most materials, available land for new construction, and interest rates that have adversely affected the environment of being able to sell and earn a profit. This has greatly affected new construction. Some 24% of the respondents were contemplating sites outside New York State. And 14% were still trying to purchase with a conventional or variable-rate mortgage.

If you earn, $100,000 or more, have a very low debt/income ratio, and have at least a 10% down payment (preferably 20% for more choices in co-op apartments), you should qualify for a mortgage. If you are planning to stay in the area for 10-plus years, have children, and want a more secure environment of ownership then you must calculate the cost over the years of renting, with the lack of tax deductions, and the reduction in wealth during the time that you will be renting. Also, you will have little control over rent increases or the chance that your landlord might not renew your lease or even decide to sell.

Even if you still need or want to buy as rates have increased, you should seek out and discuss with your CPA or financial planner whether owning will enable you to be in a stronger financial position. For a few, if cutting out those wasteful expenditures, like Starbucks, eating out, or even leasing a less costly vehicle, scheduling one less vacation, or buying fewer clothes enable you to purchase, then you just might be able to do it.

When inflation was running rampant and interest rates were as high as 18.5% in 1981, people were still purchasing, but then refinanced later when rates came down. Although our current rates are much higher, they should come down over the next year or two and you will have the opportunity to refinance. Also, you will have less competition during the winter as opposed to next spring, so you may find it easier to locate a home, with some trade-offs, that will satisfy your current needs and wants.

If you are considering renting a home as opposed to an apartment, again anticipate the costs of rent, utilities, etc., and make a comparison to the cost of homeownership. As you pay down your mortgage (which I call a fixed lease), you are slowly building your nest egg and developing appreciation for the future. Most importantly, if your business or job allows you to work from home, then the room(s) you occupy will qualify as a deduction based on the percentage of the size of your home. All things being equal as the cost of a home will continue to increase, so will your wealth as the years go by.

It will not make any financial sense for some purchasing right now and the struggle to even attempt it would not be beneficial as well as the undue stress that it may surely cause. So give it some serious thought and do what makes sense in your head and the cents in your pocket.

I hope everyone has an enjoyable, fun, and relaxing Thanksgiving with your family and friends. Eat and drink until your heart’s content, but don’t drink and drive!

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Comments (5)

Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Nov 27, 2022 03:29 AM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Thank you for the post, I enjoyed it. Have a wonderful Sunday, it all starts back tomorrow.  Bill

Nov 27, 2022 05:30 AM
Philip A. Raices
Turn Key Real Estate - Great Neck, NY
1 of the Most Knowledgeable Brokers on the Net!

Hey Richard and Bill,

 

I am hoping that 2023 will be an improvement.  However, my biggest concern and worry is all the money that was printed and handed out that consumers have now spent,  but has caused our excessive inflation; what will come next?   People are now using their credit cards as savings for many have dwindled to 0.  I believe there will be more pain for so many and this time I really don't see how our gov't will handle it.  What are your ideas to a solution?

Nov 27, 2022 10:24 AM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Welcome to the Rain. Enjoyed your blog page, and I added you as a friend. I would love the follow back. Bill

Nov 27, 2022 10:45 AM
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Hello Philip A. Raices very good helpful report for the cost of renting over purchasing.

Nov 27, 2022 03:15 PM