The TRUTH Behind the RENT vs. BUY Debate

In a blog post published last Friday, CNBC’s Diana Olnick reported on the latest results of the FAU Buy vs. Rent Index. The index examines the entire US housing market and then isolates 23 major markets for comparison. The researchers at FAU use 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

The CNBC blog post was titled, “Don’t put your money in a house, says a new report.” The title of the press release about the report on FAU’s website 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. The FAU report 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 to Freddie 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, with Freddie Mac predicting 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 for well 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.” 

BOTTOM LINE

In the end, you and your family are the only ones who can decide if homeownership is the right path to go down. Real estate is local and every market is different. Let’s get together to discuss what’s really going on in your area and how we can help you make the best, most informed decision for you and your family.


e4c234d0 bef9 4908 89af eb0d9f35df9e d76a6b0e a5d9 457e 9d9a 7c8ae488e9fd fbfa094a 62c8 4e50 af22 de7c16ead7a0 b8bde920 62b4 4399 90b7 d64212ce3700 76d4d577 7683 4eba 9fe6 61a17f388317 861b1c04 150d 435d 9575 37a1dba8bfc8 844eb043 24c4 4d38 b2f0 d83231829594 beb0f930 47f3 464b 8f4e 6584b37f8fe5 418c5977 062b 4bb8 bf98 843fb23c9a0c 032c99a5 41ee 469f 9ce3 1001747fc8c1 b8f97b86 2643 45a4 8f32 0d1dd2c9bfee bd920e3d 6d70 4f51 a5fb 5c28b18b6103 89234e30 652c 49a6 a8f8 e2d969e46f94 81163434 a6d7 4df0 8122 e48f0740a355 e0011655 5e6b 452b 8f3b 7ceb76535d27 b2f5a046 0f32 4dc7 adbf 9b5cccd2236b e43308d4 488d 4709 b956 df01672395a4 7b982cd2 f85c 4f84 94cc 07d4524173ac ec56b8f0 f2dc 48aa 946b d954fccf3e4b aba42c0a 37f9 405a 82b5 c55a24e27c55 e3a5881c 90e1 4dbc bfda b9f29251c876 36ff0a6d 39ee 4567 9322 a1a4262a8248 cb7b3013 3840 470d 8dca 82b90d622f65