Renting vs Buying
Renting vs Buying - What factors are residents considering?
As the cost of housing continues to soar across the US, deciding whether to buy a home or rent can be a difficult choice. We will broadly mention a few specific markets, but real estate is still very local.
As housing prices skyrocket, many people struggle with the decision to rent or to buy. Add the specter of spiraling interest rates, prospects of a price correction, inflationary pressures, and the choice becomes more difficult.
There are fundamental factors in play, which signal an ongoing, increased demand for rental property. However, neither homes sales nor rental markets are homogenous and there will always be variations in the timing of real estate cycles, movement of prices, and rents across the fifty States.
Changing Views
The public’s views on homeownership were altered forever after the housing crash, which occurred in 2006 through 2011. Up to that point, tradition held that home ownership to be a far better option than renting, a concept that was actively promoted by successive U.S. government administrations.
Many factors are in play, however, the BH&J Buy Vs Rent Index, which began in 2013, shows that renting and reinvesting can offer very attractive returns for investors even as housing costs rise.
What Drives Sustainable Demand for Rentals?
There are many signals showing increased, sustainable demand for multi-family rental property and we have covered some in recent articles, but to recap:
· Working from home
COVID-19 has changed the workforce, introducing work-from-home options that were heretofore the exception, not the rule. With the possibility of working from anywhere, many millennials are choosing to rent, leaving them free to explore other environments.
· Affordability
Rising home prices make it more challenging to meet down payment requirements, and higher prices, in combination with rising interest rates, often push the mortgage payment beyond the budget parameters of prospective buyers.
· Baby Boomers
People in this generation are retiring later and enjoying better health than previous generations. This means they are staying in their homes longer, which some suggest contributes to the housing shortage, which increases demand, resulting in higher home prices. Others in the boomer generation sell their homes and compete for rental property as they often choose to winter in the south and take their summers in the northern climes. This increases competition for rental property, putting pressure on this market as well.
Renting Vs Buying in Selected Markets
Florida studies, conducted by various universities, suggest that home prices in some property markets are significantly higher than their long-term pricing trends. Seattle, Kansas City, Denver, Houston and Dallas are cities in which investors may be better off renting, using their capital to invest in something other than real estate.
Potential price declines are not so severe in cities like Portland, Miami, or Pittsburgh, but the better choice would still be renting.
Other cities like Chicago, Atlanta, Cleveland, Cincinnati, St. Louis and Minneapolis offer equal opportunities for investors to create wealth whether they choose to own or rent and reinvest. In short, these cities offer a measure of stability and equilibrium.
Analyzing various real estate markets across the country, learning how markets and sub-markets are trending, what’s going up in value, what’s not moving, and where new demand is coming from will always be non-stop learning. That’s why it’s important to bookmark your favorite trusted sources such as this site.
We see potential deals across a plethora of property sectors each week, and we are convinced that a sea-change in the way residents look at property will cause multi-family asset demand to remain strong, but other hybrid models such as build-to-rent will also emerge as attractive options.