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To Buy or Not to Buy

With the housing market as hot as it is, economists from all ends of the spectrum have become increasingly vocal as to their predictions for the upcoming years. Some have tossed around the term “housing bubble” with memories of the 2008 housing crisis, while others have argued that home prices have been increasing at stable levels and will continue to do so. Regardless the current economic landscape, we recommend drowning out the noise and focusing on factors that apply to you, such as income, flexibility, and time available to maintain a property. Renting vs buying is not always a black and white issue, but perhaps these factors can shed some light on the available options.

So what’s best for you?

From an economic perspective, a home can be looked at as both a financial and emotional investment. Financially, homeownership is a great forced savings tool for many. If you plan to stay in a home long term, your mortgage payments will help you build equity in your home over time. From an investment perspective, however, buying a home with the hope that it appreciates over time is akin to timing the stock market. There is little to no guarantee that the house will increase in value at a particular rate, despite the assumptions of many. There are also many intangible factors that come into play, such as the desire to be in control of a property and time available to maintain one, both of which should be seriously considered when making this decision.

Renting also comes with an array of financial and emotional factors. Many are quick to say that renting is “throwing away money”, but is that true? Renting, while not a financial investment in itself, can be considered an investment when you look at the opportunity cost of a mortgage. For example, if you were to rent a property for $1,000 per month instead of paying a $1,500 mortgage for a similar property, the down payment, closing costs, and extra $500 per month could be invested to create a sizable portfolio over time, all while maintaining the flexibility of being mortgage-free. If you prefer flexibility and don’t mind having a landlord, renting could be a sensible and lucrative option, especially in a “renter’s market”.

Whatever market you may find yourself in, one of the most important factors to consider is the expected duration of your stay at this property. Most mortgage payments in your first few years will result in payments going primarily to interest and not equity in the home, which can result in serious financial losses if you move frequently.

We like this New York Times calculator to determine whether you should buy or rent based on a variety of factors, such as home price, length of stay, mortgage details, and more.