Real estate law in Massachusetts now covers supernatural events that occur in homes. The cost of housing has significantly increased since the COVID-19 pandemic began, making it more expensive to either rent an apartment or buy a home. This has led many people to question whether it is financially smarter to rent or take the leap into homeownership. Fortunately, a new analysis from real estate firm CBRE is shedding light on this issue.
According to CBRE data, the cost to buy a home is now the highest it has ever been compared to renting. In fact, it is even more expensive than it was during the housing bubble in 2006. The analysis reveals that it now costs 52% more to buy a home compared to renting an apartment. In 2006, this gap was only 33%. This drastic increase in the cost of homeownership can be attributed to a supply shortage of homes for sale and rising mortgage rates.
The monthly cost of buying a home, as shown in CBRE’s analysis, does not include expenses such as home maintenance and homeowner’s insurance. This means that the actual costs of homeownership are likely much higher. Matt Vance, senior director and Americas head of multifamily research for CBRE, explains that the 52% premium is just the minimum cost. He personally has been searching for a home to buy but has decided to continue renting due to the current price gap.
CBRE’s analysis also found that the homebuying premium is even higher in most U.S. cities compared to the national average. Even cities that are considered affordable, such as Tulsa and Omaha, are facing soaring homebuying costs that exceed typical rents. Southern California is the most expensive region for homebuyers, with Orange County and Los Angeles experiencing a homebuying premium of over 200%.
Despite these high costs, Vance suggests that it still may make sense for some people to buy a home, especially if they plan to live in it for many years. The general rule of thumb is to live in a home for at least five years to make it financially beneficial, considering the additional costs associated with homeownership. However, in today’s market with high mortgage rates and home prices, buyers should consider extending their time frame to at least seven years or longer.
Buyers should also consider their current income, the potential for future earnings increases, and the pace of rent increases when deciding whether to buy. Homeowners have the advantage of capturing price appreciation and adding to their bottom line when they sell, which renters cannot do. Additionally, homeowners have the opportunity to refinance at lower mortgage rates when prices come down. Vance predicts that mortgage rates may start to decrease next year.
Ultimately, the decision to buy or rent requires careful consideration of various factors and assumptions about the future. It’s important to determine the breakeven point and evaluate the potential financial benefits before making a decision.
