Buying vs. renting: First-time buyers should not give up the hunt

By Jeff Lazerson

 According to a recent analysis by Chase Bank and Google, 44 percent of 2017 online mortgage search activity is for first-time mortgages, an 11 percent increase from 2016 and an all-time high.

And, the top three mortgage-related questions asked on Google are: How much mortgage can I afford, how much can I qualify for and what type of mortgage can I afford?

Another interesting factoid: 46 percent of searches by home type from 2014 through 2016 were for apartments. No clear numbers were provided for 2017.

Consistent with these results, I see more and more first-time buyers applying for home loans, trying to figure out what they can afford compared to continuing as renters.

It’s the usual suspects: Low inventory leading to too few choices, paying a king’s ransom for a tiny, tired tepee, lack of affordability, lack of time and tenacity to stay after it and competing with cash buyers and over-bidders who have more to put down.

A big stressor is timing: Is this the top of the market? Do I wait until prices fall? Will rents and home prices keep rising? If so, then do I jump in no matter what?

At the starter home level, say under $700,000, let me give you some things to consider.

Supply and demand are the biggest drivers of home prices and sales, said Lotus Lou, California Association of Realtors spokesperson. The California Department of Housing and Community Development determined that the state is producing 80,000 new units per year when it really needs 180,000 units. So, we’re short by nearly a million units over the past 10 years, Lou wrote.

So, yes. First-time buyers face a lot of challenges.

On the other hand, paying an average of $3,000 per month in rent will cost a tenant $180,000 in five years.

By comparison, buying a condo with a $650,000 sales price might cost a buyer with good credit a lot less over that same five-year period. This assumes: (1) He or she puts 5 percent down ($32,500); (2) pays $350 a month in homeowners association dues; (3) pays 4.5 percent in interest; (4) home prices rise just 2 percent a year; (5) and he or she is in a 30 percent tax bracket.

You pay $264,000 in house payments, but gain more than $108,000 of equity between property appreciation and principal pay-down, and you get nearly $45,000 of property tax and mortgage interest deductions.

Net cost of buying: $143,500 over the first five years, not counting repair and maintenance costs.

The math says buy!

If you have questions or comments, please contact Jeff Lazerson by clicking here.