Is buying a house in 2022 a waste of money?

Is buying a house still worth it?

House prices continue to rise. And interest rates have also risen, increasing the cost of home ownership month over month. Unsurprisingly, many home buyers are wondering: Is buying a home still worth it in 2022?

The short answer is yes. If you’re financially ready, buying a home is still worth it – even in the current market. Experts agree that buying and owning a home is a smarter financial move than renting for many.

If you’re on the fence about buying a home in 2022, here’s what to consider.

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Benefits of buying a home in 2022

Despite the financial challenges of the current market, there are many reasons why buying a home in 2022 will still be worth it.

1. An increase in prices leads to an increase in equity.

One of the main benefits of owning a home is that increasing home equity over time can add to your net worth and provide you with a low-cost source of cash as needed. The ability to build equity is what separates home ownership from renting, which has no return on investment.

“Homebuyers buying a home today are still likely to see rising property values ​​and home equity. Because supply is still low relative to buyer demand, home prices may continue to rise, albeit at a slower pace,” said National Association of Realtors (NAR) Senior Economist Gay Korraton. .

“When you get married [fixed mortgage payments] With rents at record highs, owning a home and accessing equity makes even more financial sense.”

– Jason Gelios, Realtor

Cororaton indicates that, with rising mortgage rates, home prices have increased. As of March 2022, the average sales price is up 15 percent year-over-year.

Although the year Although home prices have fallen nearly 30% from their peak in 2006, they have rebounded in subsequent years, with the median single-family existing home sales price increasing at an annualized rate of 3.4% since the fourth quarter of 2006. Fourth quarter of 2021,” Kororathone added.

Using this metric, if you bought a home 15 years ago, you would probably have saved $197,500 in home equity — $141,700 of which would have been appreciation.

“A typical homeowner who bought a home over the past 30 years and sold it today would probably have built $360,700 in equity,” she says.

2. Home ownership means fixed housing costs

The great thing about buying a home with a fixed-rate loan is that “even if your home’s value goes up, your monthly principal and interest payments will stay the same over the life of your loan,” says owner Jordan Fulmer. Momentum Property Solutions in Huntsville, Alabama.

Jason Gelios, a Michigan-based realtor, points out that real estate ownership is still the primary way to create generational wealth. “And when you combine that factor with the fact that rents are rising at record levels, owning a home and getting equity makes more financial sense.”

“There aren’t many investments that yield the returns that real estate can,” he says.

3. Owning gives you the opportunity to rent

Of course, there are many other benefits to buying a home today. These include:

  • The ability to customize your home as you see it, unlike a rental unit that doesn’t allow for personalization
  • Greater privacy from neighbors, especially if you choose a single family home
  • Home equity that can be treated with a home equity loan or home equity line of credit (HELOC). This money can be used to fund home improvement projects, pay off debt, cover a wedding or other major expenses, or anything else you need.
  • The ability to claim a mortgage interest deduction on your taxes if you finance your property
  • Chances are you’ll build a stronger credit rating and improve your credit score if you pay off loans and pay your bills on time.

And there are other, less tangible benefits that many homeowners experience. For example, you may have more room to raise a family and raise your family. And you can build roots in your community and gain more stability over time. Consider that renters are four times more likely to move in than homeowners within a year, according to the US Census.

Disadvantages of buying a home in 2022

Of course, buying a home isn’t the right move for everyone. There are going to be some downsides to home ownership in any market – especially the current one. Here’s what experts say prospective buyers should watch out for.

One of the biggest disadvantages is the fierce competition that buyers face these days. It’s a dog-eat-dog market, which makes winning a home bid even more stressful.” says Gellios. “Buyers need to move quickly and know what they want in a home.”

Additionally, bidding wars are becoming more expensive to win, leaving many potential homeowners out in the cold. You don’t want to put yourself at risk by borrowing more money and/or paying higher interest rates than you can afford.

Additionally, there is no guarantee that your home will increase in value in recent years. NAR expects home price appreciation to slow to 5% by the end of the year — a rate of appreciation consistent with historical norms.

However, while property values ​​may not continue to rise as we saw in 2020 and 2021, they should continue to grow over time. And even with a slow rate of appreciation, this leads to high equity growth, making home ownership one of the best investments available.

Is it wise to buy an overpriced home?

Naturally, some home buyers worry that a mortgage is a waste of money because home prices are inflated – and if they fall, it means a net loss of money for those buying at the top of the market.

However, experts we interviewed throughout 2022 agree that a housing crash is highly unlikely.

“I don’t believe there will be nationwide destruction. For a crash to occur, supply and demand would have to be reversed, there would have to be more goods than buyers,” Fulmer explains.

“However,” he continued, “I believe many markets around the country have seen artificial inflation in the last two years. These markets may see significant corrections due to rising interest rates and other economic factors.”

If you’re buying in an area with steady growth and a strong economy, you don’t have to worry about paying more than asking price for a home…in these markets, prices can go up more than you paid. for the house”

– Jordan Fulmer, Owner of Momentum Property Solutions

Gelios agrees that we are not in a market bubble. “Unlike what we saw in 2008, there are currently no signs of a housing market crash. For example, we continue to have competitive home buyers willing to pay cash above asking price and a healthy job market with many unfilled positions — two signs that we are by no means headed for a recession.”

He added, “Even with inflation increasing the cost of everything from groceries to autos, we don’t see the housing market slowing down any time soon.” Demand for homes will remain with us for the long haul, especially as first-time buyers re-enter the market this year to pursue home ownership.

Keep in mind that the majority of people shopping for homes today are millennials who have put off buying a home and are eager to become first-time homeowners. As Gen Y continues to be pressured to host their partners and children, they join the hunt and purchase of homes. That means price pressures aren’t going anywhere.

“If you’re buying in an area with consistent growth and a strong economy, you have nothing to worry about paying more than the asking price for a home — assuming you can afford the monthly payments,” Fulmer added. “In these markets, the price will continue to rise above what you paid for the house.”

Buying compared to renting in 2022

Home prices have risen rapidly over the past couple of years, and renting isn’t always the more affordable option. Rents have also increased in many places.

“In my market, we’re seeing an additional $300 a month rent increase. That affects how much you can spend on basic necessities like groceries, gas and utilities, says Christian Ross of Engle & Volkers Brokerage Management in Atlanta. “There is also a persistent shortage of rental supply in many markets, which means you may have an easier time finding a home for sale than for rent.”

Housing payments with rent payments

“I focus more on your monthly payments than increasing home appreciation and equity,” he continues. “If your mortgage payment is less than what you would pay for a similar home, you should probably go ahead and buy a home.”

Suzanne Holland, a real estate law professor at Florida International University in Miami, says due diligence is important here.

“You need to do your homework and do the math to find out if it’s more expensive to buy or rent in your market. Find out the sale price of comparable properties and rental prices of rental properties in your area. “Calculate the amount of your monthly mortgage payments based on your research about the sale price versus your expected monthly rent,” she advises.

To estimate your future monthly loan payments, consider the following: Mortgage payment calculator with PMI, taxes and insurance

Loans are fixed, rents are not

If you choose a fixed-rate mortgage loan to finance the property, remember that your monthly principal and interest payments will remain the same throughout the term of your loan. (Remember, though, that property taxes and homeowner’s insurance costs can increase over time.)

“Rental rates, on the other hand, are unpredictable,” says Holland. “Typically, a tenant signs a one-year lease. And when the lease ends, the rent will probably increase. Only five states and the District of Columbia have rent control laws in place.

If you expect to relocate or move within the next few years, renting may make more sense than buying. That’s partly because there are closing costs on home purchases, which can range from 2% to 5% of the amount you borrow. It may take a few years to recoup those costs, which requires persistence.

Your next steps

Still undecided about buying or renting?

“Consult an experienced Realtor and mortgage lender to help you figure out what options are within your budget and shed light on your financial situation,” advises Ross.

Also, carefully research your local market conditions.

“If there is a surplus of jobs, there will likely continue to be more buyers and sellers, resulting in higher home prices,” Fulmer says. “In a less robust market, it may be smarter to continue renting in anticipation of a potential market correction and home appreciation.”

The main thing? If your finances are in order, your job is secure, you can afford the monthly payments, you’re working with a real estate agent, and you’ll be in place for at least a few years, buying a home is not. In the year A waste of money in 2022, the experts agree.

The information on the Mortgage Reports website is for informational purposes only and is not an advertisement for any products offered by Full Baker. The views and opinions expressed herein are those of the author and do not reflect the policies or positions of Full Baker, its officers, parents or affiliates.

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