It’s Wednesday Snacks. We’re talking about how we’re all going to be renting our lives away.
Yay.
Nah don’t worry.
Okay here it is:
Renting and Buying: A Dilemma in 3 Questions:
Why is renting cheaper than buying right now?
Take your pick of reasons:
High home prices: We saw sharp increases since 2020. While the market has cooled off, we aren’t seeing prices pre-2020 levels any time soon.
High interest rates: Since 2020, we went from 3.1% interest rates on 30-year fixed mortgages to 7.3%.
Renting is drastically cheaper: Renting a 2 BR apartment/house is cheaper than buying a house for 89% of Americans. Those numbers 3 years ago? 16%
Soo…it’s not only more expensive to buy, it’s more expensive to borrow. A perfect 1-2 punch if your Pinterest board was cluttered with homesteading stuff and your intention was to homeschool your 5 children.
Image taken from The Economist
Yikes. Okay, When will I be able to buy a house?
Never.
Be Serious…
It’s complicated. To restore that ownership advantage, drastic things would have to happen.
America’s entire housing market would need to have a 2008 again. Prices would need to go down at least 30%
30-year fixed mortgage rates would have to fall to 3.2%. Something unlikely to happen any time soon (that isn’t happening in our lifetime)
Rental costs would have to increase by 50%
Should I ignore the signs and try to take the plunge anyway?
You all know we aren’t for fatherly advice. But we pulled up a Goldman Sachs analysis. Say what you will about them but they know how to forecast things well.
Interest rates are 7ish% right now. In 2025, we’d probably see them at 6ish%
Home prices are set to rise by 2%-3% in the next 2 years.
It’s Wednesday please make me feel better
It’s hard to imagine what a severe dip in housing prices would look like. A large portion of this readership was in school when the last huge recession happened. We kept thinking it would happen again.
But the thing is - the housing market got fixed (so to speak).
Firms that lost track of the market failed/got bailed out and then those problems around vetting buyers went away with stricter practices.
If a downturn happens - we’d see interest rates come down at a deliberate pace (never down to 0%), and housing values on the whole would probably curbed increases than falling values.
So let’s put it like this:
Time in the market beats timing the market.
Again, none of this is investment advice
What AI Created this Week
We can get down with Ralph Lauren Santa
A RL Sketch of Santa Claus
Have a great week!
Ahmed and Peter
