There’s a lot of discussion about affordability as home prices continue to appreciate rapidly. Even though the most recent index on affordability from the National Association of Realtors (NAR) shows homes are more affordable today than the historical average, some still have concerns about whether or not it’s truly affordable to buy a home right now in Connecticut.

When addressing this topic, there are various measures of affordability to consider. However, very few of the indexes compare the affordability of owning a home to renting one. In a paper just published by the Urban Institute, Homeownership Is Affordable Housing, author Mike Loftin examines whether it’s more affordable to buy or rent. Here are some of the highlights included.

1. Renters pay a higher percentage of their income toward their rental payment than homeowners pay toward their mortgage.

The report explains:

“When we look at the median housing expense ratio of all households, the typical homeowner household spends 16 percent of its income on housing while the typical renter household spends 26 percent. This is true, you might say, because people who own their own home must make more money than people who rent. But if we control for income, it is still more affordable to own a home than to rent housing, on average.”

Here’s the data from the report shown in a graph:

2. Renters don’t have extra money to invest in other assets.

The report goes on to say:

“Buying a home is not a decision between investing in real estate versus investing in stocks, as financial advisers often claim. Instead, the home buying investment simply converts some portion of an existing expense (renting) into an investment in real estate.”

It explains that you still have a housing expense (rent payments) even if you don’t buy a home. You can’t live in your 401K, but you can transfer housing expenses to your real estate investment. A mortgage payment is forced savings; it goes toward building equity you will likely get back when you sell your home. There’s no return on your rent payments.

3. Your mortgage payment remains relatively the same over time. Your rent keeps going up.

The report also notes:

“Whereas renters are continuously vulnerable to cost increases, rising home prices do not affect homeowners. Nobody rebuys the same home every year. For the homeowner with a fixed-rate mortgage, monthly payments increase only if property taxes and property insurance costs increase. The principal and interest portion of the payment, the largest portion, is fixed. Meanwhile, the renter’s entire payment is subject to inflation.

Consequently, over time, the homeowner’s and renter’s differing trajectories produce starkly different economic outcomes. Homeownership’s major affordability benefit is that it stabilizes what is likely the homeowner’s biggest monthly expense, assuming a buyer has a fixed-rate mortgage, which most American homeowners do. The only portion of the homeowner’s housing expenses that can increase is taxes and insurance. The principal and interest portion stays the same for 30 years.”

A mortgage payment remains about the same over the 30 years of the mortgage. Here’s what rents have done over the last 30 years:

4. If you want to own a home and can afford it, waiting could cost you.

As the report also indicates:

“We need to stop seeing housing as a reward for financial success and instead see it as a critical tool that can facilitate financial success. Affordable homeownership is not the capstone of economic well-being; it is the cornerstone.”

Homeownership is the first rung on the ladder of financial success for most households, as their home is most often their largest asset.

Bottom Line

If the current headlines reporting a supposed drop-off in home affordability are making you nervous, let’s connect to go over the real insights into our area.

There’s a lot of discussion about affordability as home prices continue to appreciate rapidly. Even though the most recent index on affordability from the National Association of Realtors (NAR) shows homes are more affordable today than the historical average, some still have concerns about whether or not it’s truly affordable to buy a home right now.

When addressing this topic, there are various measures of affordability to consider. However, very few of the indexes compare the affordability of owning a home to renting one. In a paper just published by the Urban Institute, Homeownership Is Affordable Housing, author Mike Loftin examines whether it’s more affordable to buy or rent. Here are some of the highlights included.

1. Renters pay a higher percentage of their income toward their rental payment than homeowners pay toward their mortgage.

The report explains:

“When we look at the median housing expense ratio of all households, the typical homeowner household spends 16 percent of its income on housing while the typical renter household spends 26 percent. This is true, you might say, because people who own their own home must make more money than people who rent. But if we control for income, it is still more affordable to own a home than to rent housing, on average.”

Here’s the data from the report shown in a graph:

2. Renters don’t have extra money to invest in other assets.

The report goes on to say:

“Buying a home is not a decision between investing in real estate versus investing in stocks, as financial advisers often claim. Instead, the home buying investment simply converts some portion of an existing expense (renting) into an investment in real estate.”

It explains that you still have a housing expense (rent payments) even if you don’t buy a home. You can’t live in your 401K, but you can transfer housing expenses to your real estate investment. A mortgage payment is forced savings; it goes toward building equity you will likely get back when you sell your home. There’s no return on your rent payments.

3. Your mortgage payment remains relatively the same over time. Your rent keeps going up.

The report also notes:

“Whereas renters are continuously vulnerable to cost increases, rising home prices do not affect homeowners. Nobody rebuys the same home every year. For the homeowner with a fixed-rate mortgage, monthly payments increase only if property taxes and property insurance costs increase. The principal and interest portion of the payment, the largest portion, is fixed. Meanwhile, the renter’s entire payment is subject to inflation.

Consequently, over time, the homeowner’s and renter’s differing trajectories produce starkly different economic outcomes. Homeownership’s major affordability benefit is that it stabilizes what is likely the homeowner’s biggest monthly expense, assuming a buyer has a fixed-rate mortgage, which most American homeowners do. The only portion of the homeowner’s housing expenses that can increase is taxes and insurance. The principal and interest portion stays the same for 30 years.”

A mortgage payment remains about the same over the 30 years of the mortgage. Here’s what rents have done over the last 30 years:

4. If you want to own a home and can afford it, waiting could cost you.

As the report also indicates:

“We need to stop seeing housing as a reward for financial success and instead see it as a critical tool that can facilitate financial success. Affordable homeownership is not the capstone of economic well-being; it is the cornerstone.”

Homeownership is the first rung on the ladder of financial success for most households, as their home is most often their largest asset.

Bottom Line

If the current headlines reporting a supposed drop-off in home affordability are making you nervous, let’s connect to go over the real insights into our area.

In today’s housing market in Connecticut, there are clear financial benefits to owning a home: increasing equity, the chance to build your net worth, and appreciating home values, just to name a few. If you’re a renter, it’s never too early to think about how homeownership can propel you toward a stronger future. Here’s a dive into three often-overlooked financial benefits of homeownership and how preparing for them now can steer you in the direction of greater financial security and savings.

1. You Won’t Always Have a Monthly Housing Payment

Personal finance advisor Dave Ramsey explains:

“Every payment brings you closer to owning the house. When you pay your rent, that money is spent. Gone. Bye. Not returning. But when you pay your mortgage, you work toward full ownership.”

As a homeowner, you can eventually eliminate the monthly payment you make on your house. That’s a huge win and a big factor in how homeownership can drive stability and savings in your life. As soon as you buy a home, your monthly housing costs begin to work for you as forced savings in the form of equity. When you build equity and grow your net worth, you can continue to reinvest those savings into your future, maybe even by buying that next dream home. The possibilities are truly endless.

2. Homeownership Is a Tax Break

One thing people who have never owned a home don’t always think about are the tax advantages of homeownership. The same article states:

“You have tax advantages. Many of the costs of owning a home—like property taxes—are tax deductible. And if you’re paying off a mortgage, you’ll get to count your mortgage interest as a deduction when you file your tax return.”

Whether you’re living in your first home or your fifth, it’s a huge financial advantage to have some tax relief tied to the interest you pay each year. It’s one thing you definitely don’t get when you’re renting. Be sure to work with a tax professional to get the best possible benefits on your annual return.

3. Monthly Housing Costs Are Predictable

A third benefit is the fact that monthly costs start to become more predictable with homeownership, something that doesn’t happen if you’re renting. Ramsey also notes:

“Rent rates will go up. Even if you found a killer deal in a hot area, inflation, competition, and rising property values will cause your rent to go up year after year.”

With a mortgage, you can keep your monthly housing costs relatively steady and predictable. Your monthly costs are most likely based on a fixed-rate mortgage, which allows you to budget your finances over a longer period of time. Rental prices have been skyrocketing since 2012, and with today’s low mortgage rates, it’s a great time to get more for your money when purchasing a home. If you want to lock-in your monthly payment at a low rate and have a solid understanding of what you’re going to spend in your mortgage payment each month, buying a home may be your best bet.

Bottom Line

If you’re ready to start feeling the benefits of stability, savings, and predictability that come with owning a home, let’s connect to determine if buying sooner rather than later is right for you.

This year, Americans are moving for a variety of reasons. The health crisis has truly reshaped our lifestyles and our needs. Spending so much more time in our current homes has driven many people to reconsider what homeownership means and what they find most valuable in their living spaces.

According to the 2020 Annual National Movers Study:

“For customers who cited COVID-19 as an influence on their move in 2020, the top reasons associated with COVID-19 were concerns for personal and family health and wellbeing (60%); desires to be closer to family (59%); 57% moved due to changes in employment status or work arrangement (including the ability to work remotely); and 53% desired a lifestyle change or improvement of quality of life.”

With a new perspective on homeownership, here are some of the reasons people are reconsidering where they live and making moves right now.

1. Working from Home

Remote work became the new norm, and for some, it’s persisting longer than initially expected. Many in the workforce today are discovering they don’t need to live so close to the office anymore and they can get more for their money if they move a little further outside the city limits. Apartment List notes:

“The COVID pandemic has sparked a rebound in residential migration: survey data suggest that 16 percent of American workers moved between April 2020 and April 2021, up from 14 percent in 2019 and the first increase in migration in over a decade… One of the major drivers in this trend is remote work, which expanded greatly in response to COVID and will remain prevalent even after the pandemic wanes. No longer tethered to a physical job site, remote workers were 53 percent more likely to move this past year than on-site workers.”

If you’ve tried to convert your guest room or your dining room into a home office with minimal success, it may be time to find a larger home. The reality is, your current house may not be optimally designed for this kind of space, making remote work very challenging.

2. Room for Fitness & Activities

Staying healthy and active is a top priority for many Americans, and dreams of having space for a home gym are growing stronger. A recent survey of 4,538 active adults from 122 countries noted the three fastest-growing fitness trends amongst active adults:

• At-home fitness equipment (up 50%)
• Personal trainers/nutritionists (up 48%)
• Online fitness courses, classes, and subscriptions (up 17%)

Having room to maintain a healthy lifestyle at home – physically and mentally – may prompt you to consider a new place to live that includes space for at-home workouts, hobbies, and activities for your household.

3. Outdoor Space

Better Homes & Gardens recently released the outdoor living trends for this year, and three of them are:

• Outdoor Kitchens: 60% of homeowners are looking to add outdoor kitchens.
• Edible Garden: Millions of people began gardening during the pandemic . . . to supplement pantries with homegrown fruits, vegetables, and herbs.
• Secluded Spaces: As outdoor activity increases, so does the need for privacy.

You may not, however, currently have the space you need for these designated areas – inside or out.

Bottom Line

If you’re clamoring for more room to accommodate your changing needs, making a move may be your best bet, especially while you can take advantage of today’s low mortgage rates. It’s a great time to get more home for your money, just when you need it most.

Are you clamoring for extra rooms or a more functional floorplan in your house? Maybe it’s time to make a move. If you’ll be able to work remotely for the long-term or your overall needs have simply changed, it’s a great time to sell your house and move up. Why? With mortgage rates in their favor and higher-priced home sales powering more moves across the country, sellers in today’s market are finding the space they need (and have always dreamed of) by purchasing a home in the upper end of the housing market.

With so few homes available for sale and high demand from today’s homebuyers, sellers are profiting in major ways this season. Bidding wars are gaining traction, driving up the sale price of more and more homes throughout the country. This means sellers are able to leverage extra cash from higher-priced sales while also taking advantage of today’s low mortgage rates when they purchase their next home. It’s the perfect scenario to move up into a true dream home. According to the April Luxury Market Report from the Institute for Luxury Home Marketing:

“The Institute’s recent analysis of sales in 2020 for homes over 5,000 square feet support the continuing preference for larger homes. The analysis determined that there was a 17% increase in the number of 5,000+ sq ft homes sold when compared to the number of sales in 2019.

Luxury home prices continue to see record highs in the majority of affluent ex-urban communities, as the influence of being able to work from home is still driving buyers away from living in high density areas. Low interest rates also remain in play, allowing buyers to realize the affordability of owning a larger property, which further reinforces this trend.”

Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), also explains:

“The market is hot pretty much everywhere and across all price points . . . The only area where there is sufficient inventory is in $1 million-plus homes . . . .”

While this price range certainly doesn’t fit every budget, if it’s in your reach this summer, you may want to make your move sooner rather than later. Today, more homes are available in this segment of the market, but as the report mentions, more buyers are investing here too, so competition may heat up sooner rather than later.

Bottom Line

If you’re planning to sell your current home to move into a larger one, let’s connect today. We’ll discuss your current situation and the opportunities in our local market.