In a blog post published last Friday,CNBC’sDiana Olnick reported on the latest results of theFAU Buy vs. Rent Index. The index examines the entire US housing market and then isolates 23 major markets for comparison. The researchers atFAUuse a“‘horse race’ comparison between an individual that is buying a home and an individual that rents a similar-quality home and reinvests all monies otherwise invested in homeownership.”
Having read both the index and the blog post, we would like to clear up any confusion that may exist. There are three major points that we would like to counter:
1. The Title
TheCNBCblog post was titled,“Don’t put your money in a house, says a new report.”The title of the press release about the report onFAU’swebsite was“FAU Buy vs. Rent Index Shows Rising Prices and Mortgage Rates Moving Housing Markets in the Direction of Renting.”
Now, we all know headlines can attract readers and the stronger the headline the more readership you can attract, but after dissecting the report, this headline may have gone too far. TheFAUreport notes that rising home prices and the threat of increasing mortgage rates could make the decision of whether to rent or to buy a harder one in three metros, but does not say not to buy a home.
2. Mortgage Interest Rates are Rising
According toFreddie Mac,mortgage interest rates reached their lowest mark of 2017 last week at 3.89%. Interest rates have hovered around 4% for the majority of 2017, giving many buyers relief from rising home prices and helping with affordability.
While experts predict that rates will increase by the end of 2017, the latest projections have softened, withFreddie Macpredicting that rates will rise to 4.3% in Q4.
3. “Renting may be a better option than buying, according to the report.”
Of the 23 metros that the study reports on, 11 of them are firmly in buy territory, including New York, Boston, Chicago, Cleveland, and more. This means that in nearly half of all the major cities in the US, it makes more financial sense to buy a home than to continue renting one.
In 9 of the remaining metros, the decision as to whether to rent or buy is closer to a toss-up right now. This means that all things being equal, the cost to rent or buy is nearly the same. That leaves the decision up to the individual or family as to whether they want to renew their lease or buy a home of their own.
The 3 remaining metros Dallas, Denver and Houston, have experienced high levels of price appreciation and have been reported to be in rent territory forwell over a year now, so that’s not news…
Beer & Cookies
One of the three authors of the study, Dr. Ken Johnson has long reported on homeownership and the decision between renting and buying a home. The methodology behind the report goes on to explain that even in a market where a renter would be able to spend less on housing,they would have to be disciplined enough to reinvest their remaining income in stocks/bonds/other investments for renting a home to be a more attractive alternative to buying.
Johnson himself has said:
“However, in perhaps a more realistic setting where renters can spend on consumption (beer, cookies, education, healthcare, etc.), ownership is the clear winner in wealth accumulation. Said another way, homeownership is a self-imposed savings plan on the part of those that choose to own.”
In the end, you and your family are the only ones who can decide if home ownership is the right path to go down. Real estate is local and every market is different. Meet with a local real estate professional who can explain what’s really going on in your area and can help you make the best, most informed decision for you and your family.
WHO WE ARE
SCOTTIE SMITH II & ASSOCIATES is one of Dallas/Fort Worth’s fastest growing boutique brokerage firms. We are located in the historic Deep Ellum District of Dallas, Texas and focus on addressing the needs of home buyers, sellers, and investors. We do more than close real estate transactions; we help our clients build wealth and restore communities!
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"After going through a failed sale, a business partner introduced me to Scottie. He came over and did a walkthrough and presented me with statistical data on my house and neighborhood. Scottie had complete confidence that my would sell in no time. He was right! I was very impressed with the amount of traffic my house received, not to mention the contract. Scottie and his team were A1 and professional! After completing some "to-do" items for him and the buyers, I signed the paperwork and closed the sell of the house to the new home owners today! Smoothest process ever!"