Rent or Buy: With Home Prices Soaring, Which Is Better?
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What is the main topic discussed in this episode?
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How are rising home prices and rents changing the rent-versus-buy question?
Here's your money briefing for Friday, May 13th. I'm Trenana Ree for The Wall Street Journal, filling in for J.R. Whelan. We've talked a lot on the show about how the cost of buying a home is going up. We've also talked about how rent prices are climbing. So what makes more financial sense right now, renting or buying? It's not as clear cut as it used to be.
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.
On today's show, our housing reporter, Will Parker, breaks down the new math on renting a home or buying one.
What is the traditional financial argument for buying instead of renting?
That's after the break.
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Why is the break-even time for homeownership getting longer today?
The housing market is historically hot. Home prices were up nearly 21% in March from a year earlier. At the same time, the cost of rent keeps going higher. Rent for a single-family home rose more than 13% in February year over year, according to CoreLogic. So with costs up across the board, does it make more financial sense to rent or buy a home? Here to talk about this is WSJ housing reporter Will Parker. Hi, Will. Thanks for joining me.
Thanks for having me.
So Will, historically, owning a home has been seen as a good long-term financial bet. But the housing market has changed a lot recently, both for renters and buyers. So I want to find out if that's still true. Can you just start out by explaining how this question of renting versus buying is normally thought of?
What are the financial risks if you sell a house before the break-even point?
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.
Well, why is that changing?
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.
Can you talk more about that break-even point where owning a home starts to pay off more than renting one? What happens if someone buys a home and then sells it before that point?
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.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:00–0:30
2
How are rising home prices and rents changing the rent-versus-buy question?
0:30–1:13
3
What is the traditional financial argument for buying instead of renting?
1:13–1:55
4
Why is the break-even time for homeownership getting longer today?
1:55–2:42
5
What are the financial risks if you sell a house before the break-even point?
2:42–5:40
6
How does the rent-versus-buy timeline vary across different U.S. housing markets?
5:40–8:08
7
What assumptions and variables go into models that calculate rent versus buy break-even points?
8:08–8:44
Speakers
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