At some point in life, many must make the tough decision between renting or buying property – an important financial and lifestyle consideration that often has long-term ramifications.
With increasing house prices, higher mortgage interest rates, limited housing inventory and inflation making the decision between renting and buying more difficult than ever, the question of buying or renting becomes more complicated than ever before.
1. Costs
Decisions between renting or buying can be complicated by factors like mortgage rates, home price appreciation and maintenance costs, plus our desire for ownership versus our willingness to rent.
Conventional wisdom dictates that owning is often the better long-term choice over renting, although this depends on various factors, including tenure length and various personal requirements such as financial discipline, lifestyle choices, age and work situations. At present, however, housing market trends strongly favour sellers; due to low inventory levels driving prices higher. Both Case-Shiller Index and Zillow Observed Rental Index have recovered somewhat since pandemic lows but remain below pre-pandemic growth levels.
2. Flexibility
Renting can offer greater mobility than owning property, which may be particularly advantageous to travelers or people relocating for work.
Local housing markets also play a factor when considering whether renting is less costly than purchasing. When demand exceeds supply, prices increase, making home purchases less desirable to prospective buyers.
Mortgage rates also play a critical role in determining home affordability. High interest rates can discourage prospective home buyers, while more reasonable ones make purchasing easier for prospective buyers.
3. Taxes
At times, the housing market can seem Dickensian. Rising interest rates and low home sales harken back to the Great Depression; but Fleming thinks its bad days might soon come to an end.
One reason for the slowdown in housing activity is a shortage of available houses for sale, meaning buyers must compete for limited properties that remain available – leading them to drive prices up in turn.
Other considerations also influence a city’s cost of living, including its composition of workforce and housing affordability. If, for instance, its workforce is heavily concentrated in one industry, higher property taxes and reduced affordability might become issues that make living there more expensive, making long-term home investment less appealing.
4. Equity
Homeowners can leverage mortgage interest and property taxes to build equity in their homes, which can then be used for expenses, improvements, or potentially selling it at a profit when the housing market falls. But it’s important to remember that return may not always be available when housing prices drop dramatically.
The housing market can also be affected by demographic shifts. For instance, more baby boomers are downsizing or moving to retirement communities while more millennials enter the workforce and seek affordable homes – causing more fluctuations than usual in the market. This results in greater fluctuations.
Seller’s markets provide opportunities for real estate investments with rapid price appreciation over rent increases; this may create an appealing return on your investment. Unfortunately, this can create challenges in tight markets where inventory availability is limited.
5. Tenure
Tenure should always be an important consideration when making the decision whether or not to purchase. For example, if you’re concerned about how current market conditions could influence future prices (for instance, should home price indexes like the Case-Shiller Index continue to climb), renting for some years might make more sense than making an immediate purchase decision now.
According to the AAUP, tenure “is essential in supporting freedom of inquiry and research, freedom of extramural expression and activity, and economic security for faculty.” Historically, tenure provided freedom for professors who spoke out on controversial issues like slavery or civil rights – with Steven Salaita’s dismissal from University of Illinois being just one recent instance where tenure provided security. Having tenure can be invaluable asset for higher education professionals.
