You don’t have to follow the real estate market constantly to have heard home prices have reached all-time highs. If you have been a home buyer over the past year, then you have been acutely aware of what has happened. Chances are, you have not been that happy about it. There is pretty good data out there that rising home prices have been turning off home buyers, which has caused home sales to slow down. Right now, only about 28% of home buyers think it is a good time to buy a house and much of that is thanks to the direction of home prices. However, popular sentiment is not always correct. Just because a majority of people think it’s not a good time to buy a house it doesn’t mean they’re correct. In spite of home prices, it is far better to be making mortgage payments than rent payments. 

Rent Prices are Rising Dramatically

Rising home prices might be causing sticker shock in some home buyers, but rent prices are following the same trends. Recent data indicates that rent prices have increased over 8% from the previous year’s levels. Rent is rising at a faster rate than anything we have seen since 2005. What is important to realize is that this is a long-term trend. It is not short-term. A look at the most recent census data demonstrates that rent has been rising since 1988. There is no doubt that rent has been rising and in the short-term it has been rising very quickly. So, what does this mean for home buyers? If rent is rising, but so are home prices, does it make more sense to pay rent or make mortgage payments? 

Pay Your Mortgage and Stop Paying Rent

Home prices are going through the roof, but so is rent. One way to determine whether or not it makes sense to buy a house even as housing prices are on the rise is to directly compare rent prices versus mortgage payments. We have the data to be able to make that comparison. According to the National Association of Realtors the median mortgage payment in the nation for homes that have recently closed is $1204. These are only homes that have recently closed, so you know that it has taken into account rising prices over hte past year. Data from Realtor.com places the average monthly rent at $1575. Even with rising housing prices, the median monthly mortgage payment is about $370 less than the medium rent payment. Buying a house and paying a mortgage costs you less each month than rent. 

Aside from the pure comparison between median mortgage payments and median rent payments, there are other financial reasons why it’s better to buy than rent. First, if you have a fixed-rate mortgage then your monthly mortgage payment stays the same over the course of your home loan. That is not true with rent. As we saw in the data up above, rent has been increasing constantly since 1988. Second, everytime you pay rent the only person who really benefits financially is the person who owns the house. When you make your mortgage payment you are building assets for yourself. As you pay down the principal on your home loan, you start to build equity. Equity is an asset and often it is the biggest asset Americans own. 

Mortgage Payment Versus Rent: The Miami Case Study

Miami is an interesting case study. Demand to buy a home has skyrocketed because of low mortgage rates. Miami has seen a tremendous amount of buying pressure because of this demand. In turn, home prices have also gone through the roof in Miami. In fact, more homes are selling above the listing price in Miami than nearly any other market in the nation. It would be easy to assume that because prices are rising so rapidly that it makes more sense to continue renting in Miami than it does to buy a house. However, rent is getting really out of hand in places like Miami. Miami has some of the highest month-to-month increases in rent in the entire country which is even outpacing the increase in home prices. Even as homes are sold for more than anyone could have imagined, it still makes more sense to buy than rent. 

Final Thoughts

Housing prices might be shocking, at the moment; however, what is truly shocking is the notion of paying even more for rent without building anything of value. Buying a house and becoming a homeowner is an investment in yourself. Paying rent merely helps your landlord’s investment. It might seem unreasonable to buy a house at today’s prices, but when you analyze the data it’s clear that the truly unreasonable thing to do is to continue renting. If you are renting and tired of investing in someone else rather than yourself, contact us. The team at Peoples Choice Mortgage is here to help you find a mortgage that meets your needs at a price that works for you.