The rent vs buy decision is vital to personal financial success. Above all, many would be homebuyers should choose to rent for the next 18 months.
Home ownership can be a risky investment…the prospect for home prices is highly correlated to employment prospects…While the specific situations that workers may find themselves in may be unpredictable, the risk is predictable. The idea that home ownership is somehow a secure investment immune to the ups and downs of the economy is nonsense. The fact that downs are associated with periods of unemployment makes the risks even greater.
Source- Economist Dean Baker
Choose to Rent
Harvard Business Review reported a 13.5% increase in productivity when the employees of Ctrip’s call center were permitted to work remotely. In other words, increasing remote worker productivity and changes in tax policy make renting, more favorable. Most importantly, if workers can be anywhere, they can choose to move to lower priced housing. In other words, the result will be overall lower home appreciation. However, changes in the economy and/or housing policy take a long time to affect the housing market.
Notably, the SALT $10,000 limitation will impact lower priced housing. Homebuyers in states with little or no state taxes because of the Salt limitation will see no difference, tax wise. In other words, the lower priced market home buyers see no difference between taking the standard deduction and itemizing on their income tax returns. In conclusion, home buyers at the lower end of the market should choose to rent. Even though they would pay more in mortgage interest becuase of the higher rates, it makes no difference on their tax returns.
In conclusion, lower priced home buyers in low or no tax states should choose to rent vs buy.
Why haven't rising interest rates made housing more affordable?
Answer: Lack of supply
- Lack of sellers
- A homeowner who sells exchanges a low-rate mortgage for a higher one. They’d rather keep the mortgage they have.
- Private Equity Investment
- Institution investors purchased 13.2 percent of all properties sold in 2021. Source 2022 report by the National Association of Realtors. Institutional investors look for comparable advantage. In other words, they don’t see more favorable investments to move out of rental real estate.
- Short term rental hosts such as Airbnb or VRBO.
- Although guest reservations are slowing, these investors haven’t sold because they don’t want to have to buy replacement property at a greater mortgage rate.
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