Home Purchase or Keep Paying Landlord’s Mortgage
I recently read some interesting stats put out by the goverment that showed what renters accumulated in assets vs home owner appreciation gains over a ten year period. The Department of Commerce reports that between 1995 and 2004, the average renter accumulated a little over $4,000 in net worth. The average homeowner accumulated $184,400. That translates into $180,000 more, or $1,500 per month. In other words, each month that the average first-time buyer continues to rent, it costs them $1,500 in lost wealth accumulation. Furthermore, renters are subject to rent increases as well as higher tax rates because they cannot take a mortgage deduction.
With rents increasing in the Bellingham Whatcom County area this would seem to be a convincing factor on why waiting to purchase a home may not be the right thing to do for some potential home buyers. Interests rates are low again, homes available to purchase are high and are approaching reasonable prices, and negotiations currently favor buyers. It’s just one more thing for buyers to think about when considering whether they should purchase now or wait until some magic moment in the future…
Speaking of waiting for a better time to purchase, home buyers should consider the following scenario I read in the February 25, 2008 issue of Time Magazine as an example of the cost of waiting to buy. The article logically poses the argument that home prices and mortgage interest rates do not rise and fall in sync. Though prices may fall a bit farther, rates can turn and head up at any time. Their example begins with the purchase of a home today at $218,900 at an interest rate of 5.5%. They compare it to purchasing the same home a year from now at $197,010, a drop of 10% in price, but with an interest rate of 6.0%.
The principal and interest monthly payments end up less than a dollar apart. So, the price savings evaporates with the increase in interest rates. But that’s not all:
- Waiting caused them to pay an extra year’s rent for a home they do not want.
- The interest tax deduction they could have used by Itemizing was lost for an entire year.
So when home buyers are trying to time a market either on price, interest rates, finding the right home, or any other number of reasons…many times the waiting game will in the end be a lost opportunity. In my life time the best investments that I have ever made, were the times when nobody else wanted to take the risk and buy. The need for housing will not disapear, thats a fact, the time to buy is when others are sitting on the fence, causing an in-balance with the supply and demand curve in a buyers favor…
Jerry Campbell - Muljat Group - Bellingham WA - Bellingham Real Estate