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Why You Should Buy Instead of Renting

Why you should buy instead of renting

For most people, the decision to purchase a home is a weighty one that’s reached after careful deliberation and planning. And given the size of the investment, it should be.

That said, a recent report on the state of the housing market suggests that this may be the best time in recent memory for regular folks to purchase a home. In all 100 of the metro areas surveyed in the report, buying a home was found to be less expensive than renting a comparable space. In some places, the difference was truly staggering. The Detroit region, for example, saw a 66 percent gap between the cost of purchasing a home and the cost of renting one.

Mortgage rates and supply

Prospective homebuyers who take this report’s findings as good news can thank a handful of related factors. For starters, most U.S. metro areas have seen substantial drops in list prices since the market’s mid-2000s peak. This has dramatically reduced the cost of homeownership for new buyers and created impressive investment opportunities for buyers who have entered the market since 2010.

Historically low mortgage rates have also played a key role. Although rates have recently risen from multi-year lows, they still sit well below the historical average. Over the 30-year span of a typical mortgage, current rates may save buyers of larger homes tens of thousands of dollars on their cumulative payments. On a nationwide basis, prevailing mortgage rates would have to exceed 10 percent to render renting more affordable than buying.

Narrowing the gap

It’s important to note, however, that the now-clear advantages of buying won’t last forever. Mortgage rates have begun a slow but unmistakable ascent, and it seems likely that they’ll continue to rise in the absence of unforeseen financial shocks. This has already narrowed the “cost gap” between buying and renting. Over time, buying may become a bit more expensive than it is now. First-time homebuyers who might be tired of paying sky-high rents would do well to seize this opportunity before it disappears.

Benefits for those who act now

For now, buying a home remains a superior alternative to renting a similar space. Although every buyer’s situation is a bit different, it’s clear that home values will continue to rise in most metro areas. For buyers who act relatively quickly, this offers a chance to reap substantial returns. Those who can lock in low mortgage rates will find their returns magnified.

It’s important to remain clearheaded about the relative merits of buying and renting. But over longer timeframes, the advantages of buying over renting have never been more clear. Prospective homebuyers would do well to explore their options now, while these benefits persist.

Contact a Modtown expert to start looking for your next home and take advantage of all these benefits.