Is it better to buy or rent a house?

As people flock to the suburbs due to the pandemic, house prices have risen and rents have fallen in the United States.

And yet, owning a mid-priced three-bedroom home is still more affordable than renting in about two-thirds of the country, according to a new analysis of 2020 figures by real estate data company ATTOM Data Solutions. A year ago, owning was more affordable in just over half of the counties analyzed by ATTOM. This despite the fact that median home prices have increased faster than the average rent and average wages in most places.

This is because mortgage rates have fallen over the past year. In July 2020, the average rate offered to well-qualified borrowers fell below 3% for the first time and hit an all-time low of 2.65% in January 2021. While rising, rates remain low, offering home buyers cheap money.

“Your monthly mortgage payment has gone down, just because mortgage rates are so low,” said Todd Teta, director of products at ATTOM. “This is what offsets increases in home prices and makes home ownership still very affordable in many United States. “

Driven by low rates and the possibility of working from home due to COVID-19, many city dwellers have moved from city rentals to buy homes in the suburbs. ATTOM has found that affordable housing for purchase is still concentrated in suburban areas. People who moved from the city to the suburbs were often able to purchase larger homes at better prices per square foot.

Even those who have chosen to rent in the suburbs often pay less, despite the fact that rents in secondary and suburban markets are rising faster than in cities, according to a new report from realtor.com.

Rend has seen sharp declines in major cities such as Los Angeles, Seattle and New York, but renting in these locations remains more accessible than buying. Selling prices fell drastically in the largest cities at the start of the pandemic, but have started to rebound and are still generally higher than in the suburbs.

To determine which option is most affordable in a given location, ATTOM compares the percentage of the local average monthly salary needed to cover rent versus the share needed for the typical mortgage payment.

For example, in Manhattan, the average rent absorbs about 28% of the average salary in the borough, while owning the median price of a house requires 96%, according to ATTOM. In contrast, an hour west in Sussex County, New Jersey, the momentum is reversed. The average rent there is around 52% of the monthly salary. But the monthly property expenses are 44%.

Of course, deciding whether renting or buying is right for you involves more than just a price comparison. Here are some other questions to consider.

Are you going to be living in a house for at least 5 years?

Regardless of the level of your monthly mortgage payment, it usually takes several years for a home purchase to pay off. This is due to the high upfront costs of buying a home, as well as the regular expenses associated with home ownership.

Closing costs on the purchase may total 5% of the sale price. Then there are property taxes and home insurance premiums, which vary by region. However, the expense that many new homeowners aren’t prepared to handle is maintenance, which averaged around $ 3,000 in 2020, according to the HomeAdvisor home improvement market.

“If you plan to be mobile and relocate in about five years or less, it’s probably best to rent just because the costs associated with homeownership are significant,” said George Ratiu, economist. principal at realtor.com.

To calculate how long a homeowner needs to hold a property to become more affordable than renting, realtor.com compares the purchase costs (a down payment, mortgage expenses, maintenance costs as well as property taxes and insurance). ) rental expenses (such as a security deposit, rental insurance and monthly rent).

Taking into account inflation, interest rates and the build-up of equity capital, purchase vs rental calculator can help home hunters determine their own break-even point.

In expensive subways, it can take much more than five years to justify buying a home. For example, in Manhattan, owning becomes cheaper than renting after 12 years on average, according to realtor.com. In contrast, in Raleigh, North Carolina, it only takes four years for the purchase to pay off.

Do you have your financial house in order?

According to a recent LendEDU loan market survey, 55% of new homeowners now regret taking out a mortgage during the current economic downturn. Most of them cited the financial difficulties caused by the pandemic as the source of their remorse.

Ratiu advises tenants to tidy up their financial situation before buying a home. Future homeowners should pay off their existing debts, set aside emergency savings and cash for as large a deposit as possible.

While some lenders allow down payments as low as 3% and sometimes less, “the larger the down payment the better,” Ratiu said. Conventional home loans typically require a 20% down payment to avoid paying mortgage insurance. In addition, the more buyers pay up front, the lower their monthly payments.

Experts say that whether they are homeowners or renters, ideally people would not spend more than a third of their income on household expenses. Anything above this threshold would be a burden on the cost of housing.

When it comes to emergency cash reserves, personal finance experts recommend having enough to cover living expenses for three to six months. As a homeowner, you’ll want at least that to cover maintenance and unscheduled repairs.

What are your life goals and your investment strategy?

Saving for a large down payment takes time and effort. Sometimes these funds can be better used depending on personal goals. Renting an apartment can offer tenants the opportunity to “use their money for other purposes, whether it’s investing in the market or starting a business,” said Stephanie Kanner, broker at Fox Residential in New York.

In fact, over the long term, investing in stocks is often more profitable than buying a home, especially after factoring in the costs of owning a home. Although house prices have risen significantly since the Great Recession, historically home appreciation tends to be lower than what the stock market reports.

However, the question of whether to buy a home – and when exactly to do it – often transcends investment strategy. “The majority of people don’t just make a financial decision,” Teta said. “They usually make a life decision and then decide to rent or buy.”

The decision to buy is often linked to stages that require more space, such as getting married or starting a family. But it also has monetary repercussions depending on the dynamics of local markets.

If your business allows you to work from home after the pandemic, should you buy a house?

Due to the pandemic, masses of urban tenants have decided to move to the suburbs and small towns. Lifestyle changes such as working from home, which some companies are now adopting as a routine policy, are an incentive to buy housing in cities that are more affordable than big cities.

But Douglas Elliman’s real estate agent Stacey Oestreich says homebuyers moving to new areas should consider renting for a while, even if they can afford a home. This strategy allows future owners to “test” a neighborhood, its schools and its amenities.

“Renting gives you the ability to make the right decision,” she said. “The biggest decision everyone has to make is, ‘Where do I want my family to live? If you don’t know, leasing takes some of the pressure off.

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