If our house was paid off, it would change our retirement plans dramatically. I believe in leverage, but pulling the trigger when you are paying $3600 / mo in rent is unsettling.
The only way to lock in a housing cost is to buy.
I am a real estate investor turned agent in the Phx metro area. For years and years, even before Covid, everyone’s been saying, prices can’t last, they’ve got to come down etc etc.
They have come down post-Covid run up, but still in line with average appreciation numbers for our area established well before Covid’s overheated market.
That being said, inventory is increasing and there are some good deals to be had. It’s a great time to buy right! Are there better deals ahead? Maybe.
Will the economy flounder, will interest rates come down unlocking pent up demand, will there be a slow down in relocations to the area, will the state turn from it’s job-attraction formula?
All maybes and all maybe nots.
You could try to time the market, hoping everything aligns for a market “crash,” all the while throwing $3600/mo away in rent. Many have done the same.
It’s been heartbreaking to watch my friends, family, and clients lose out on the appreciation that’s been steady since the Great Recession and even worse, be priced out of ownership all together.
Given we’ve already had our post-Covid correction in the area and homes in desirable neighborhoods in good condition are still selling quickly with multiple offers (not ridiculously high like we were seeing in Covid, but still in demand), the idea of a “crash” seems unlikely without a major economic catastrophy or going to war. All the while, how much would you have lost in rent?
A year ($43k), two years ($86k), or even 3 years ($130k) until a crash occurs? A 20% loss in value is generally considered a crash – $160k of an $800k house.
You can see the math. By renting, you’re guaranteeing a loss, by buying, your gambling that there won’t be a crash or more accurately, that you won’t need to sell during that crash. (You only lose money when you sell in a down market, right?)
If you continue renting for 7 years, that’s $302k in GUARANTEED LOSS! In 7 years, we could have a crash and a full recovery and then some.
Obviously, there are other factors to consider, like quality of life, how long you’ll be in the home/area, your career field, opportunity cost of buying and renting, being aggressive to make the right deal on the right house, or downsizing your rent to offset the gamble of continuing to rent, etc, but in general, rent is a poor investment given all of the factors above.
