Will Buying a Home Save You Money Over Renting? Most Likely.

By Pierre Masquelier, Cross Country Mortgage

Economic Commentary

The highly anticipated Bureau of Labor Report for August showed signs of a persistent labor strength with U.S. employers adding 315,000 jobs in August, a slower but still solid pace in a tight labor market. The jobless rate rose to 3.7%. Today’s jobs report is not strong enough to get the Fed to be more aggressive in terms of rate hikes, and not weak enough to slow them down. For now, they remain on course to deliver another rate increase of 50-75bps at the next Fed meeting on September 21st. Following the news, interest rates remain elevated for the week but flat for the day!

Industry News

To Rent or to Buy? It’s an important question that requires considering multiple factors. And contrary to what you might think, even as home prices and interest rates surge, your clients could still save money buying a home.

Here are some important points to consider:

Rents are soaring (AKA “Rental Inflation”) Most rents are pegged to market forces and calibrated based on the Consumer Price Index, and both have been rising significantly. In fact, because of higher inflation, some California renters have seen their rents increase as much as 10% in the last year alone!

Intensifying the problem is the fact that as interest rates go up, many prospective homebuyers will be unable to afford the resulting higher mortgage payments and will therefore remain in the rental market, increasing rental demand and rent payments even more.

Bottom line, the alternative to buying isn’t very appealing. 

Housing is a hedge against inflation. During past periods of high inflation, real estate has tended to be a better asset class than other kinds of investments like stocks (and better than leaving money in a checking or savings account).

Buying a home and locking-in an interest rate below the rate of inflation is a good way to protect yourself from inflation.

Increasing Equity.  Homes increase in value over time as the mortgage debt decreases. This adds to the amount of equity in your home and all things being equal, increases your personal net worth—not your landlord’s. What’s more, experts believe the advent of “work from home” will only further contribute to rising home values which in turn will lead to even greater homeowner equity.

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