Dueling Homebuying Trends Are Challenging Prospective Buyers

There is no shortage of news about the housing market, and the same goes for advisory articles for those considering buying a home. Unfortunately, while one resource can get prospective buyers excited about buying now due to affordability, another clearly illustrates the shrinking inventory and resulting rising prices.

The Buy versus Rent Decision Says Go for It

The cost to rent versus buying a home is the subject of many articles, with the current consensus being that continuing extremely low interest rates are contributing to the better affordability of buying versus rentingi.

ATTOM Data Solutions’ 2021 Rental Affordability Reportii shows that owning a median-priced three-bedroom home is more affordable than renting a three-bedroom property in 572, or 63 percent of the 915 U.S. counties analyzed for the report.

Another argument for buying versus renting involves inflation and appreciation. If you rent, your rent will rise with inflation, while a mortgage payment remains the same. You avoid one financial pressure from inflation. Then there is the appreciation in value of your owned home over time. In this respect, you profit from inflation as your home’s value rises.

One especially important consideration in a buy versus rent decision is how long you think you will stay in one area before selling the home. Estimates vary with markets and other factors, but generally the time it takes to break even in a home ownership purchase and sale is at the very least 5 years, and more often around 8 years. Today’s workforce is more mobile than in the past, so consider your current employment and career growth goals before buying a home.

The Housing Market Challenges Buyers with Rising Prices

Current estimates say that the U.S. housing market is now nearly 4 million homes short of buyer demandiii. Compared to 2018, this represents a 52% rise in the home inventory shortage. The inventory shortage is particularly acute in the entry-level housing market. This further complicates the first-time homebuyer’s dilemma.

There has been an exaggerated market impact on demand for homes in the suburbs and in rural areas. The COVID-induced exodus from cities to outlying areas accelerated when workers found they could work more from home and farther from their offices. The pandemic also caused supply chain disruptions, further reducing the number of new homes under construction.

According to the National Association of Realtors, in February 2021 there was a record low two-month supply of homes for sale. Median home prices in the month jumped nearly 16% from a year earlier to a median home price of $313,000.

Today’s home buying situation is aptly described by a quote from the first paragraph of the Charles Dickens Tale of Two Cities. “It was the best of times; it was the worst of times.” The sharp buyer can navigate the market and come out well with some careful research and a bit of luck.

i Choosing to rent or buy? Rise in home affordability can make it an easy decision – FoxBusiness.com

ii Owning A Home More Affordable Than Renting in Nearly Two Thirds of U.S. Housing Markets – AttomData.com

iii U.S. home market nearly 4 million homes short of buyer demand – FoxBusiness.com


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