Will Parker

speaker

780 appearances 18 recordings 1 series first heard May 2019 last heard Nov 2024

Will Parker’s voice in public audio — every appearance, attributed to the second.

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WSJ Your Money Briefing · Rent or Buy: With Home Prices Soaring, Which Is Better? · 13 May 2022 podcast

The time it takes for you to build enough equity for the home prices to rise enough, where if you sold, you could cover all your costs, that time is getting longer.

Thanks for having me.

Yeah, the argument in favor of buying a home is that, you know, unlike rent, the payments that you make on your home mortgage, that's equity in the house that comes back to you when you sell later, right?

What's happening now is the time it takes for you to build enough equity for the home prices to rise enough where if you sold, you could cover all your costs.

That time is getting longer.

So the big thing that's changed is that while rents have risen basically everywhere by a significant amount, home prices have risen even more.

So what you're seeing is that because the barrier to entry to own a home, the price that it costs to buy one and how big those payments will be, because that's risen faster than rents, it's going to take longer for the home buyer to make owning a home more cost effective than renting.

So the risk of selling too soon when you buy a home is that you could lose a lot of money relative to what it costs you to rent during the same time.

And one of the examples we looked at for this story was Austin, where someone buying a median priced home and doing it with the sort of 10% down payment and interest rate that we were projecting as typical.

If they sell too early, if they sell only three years to owning, the model we worked with shows that they would lose $30,000 compared to the cost of renting over the same period.

But past the break-even point, which for our purposes was 5.6 years in Austin, every few years they accrue more and more equity, and the financial benefit relative to renting really starts to increase.

And by the time you're 15 years into owning a home in Austin, the model projects that the typical buyer of a median home there would be up $140,000 relative to the cost of having rented over that same 15-year period.

So if you can hold on and if you can afford the payments in the first place, which is a big if in this market where the barrier to entry is so high, there are some pretty substantial benefits for a lot of buyers.

We looked at 20 different markets in this sample, and in 19 of them, the time it takes to break even relative to what it costs to rent has gotten longer.

It's all within, you know, mostly within eight years across the board.

But there was actually one market in this 20 where the time it takes to break even actually got faster, and that was Miami.

And the main takeaway there is the exact opposite of the other markets.

Whereas, you know, these other markets, home prices rose so much faster than rents.

And Miami rents for houses specifically, which is what we looked at, those rents ran even higher than home sales prices.

And so that's an outlier market where, you know, buying is even more attractive if you can because rents are rising so, so quickly.

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