Rent vs. Take: Which Makes Extra Sense In The Present Valid Estate Market?

Being a single mom for so long,being able to buy a house, it was always something I wantedfor my daughter. But it was always out of the picture. I wasnot very good with my money. I was living paycheck to paycheck. She was very nervous aboutbuying a home and she didn't think that we could do it. To buy or not to buy has neverbeen a simple decision. That won't fit in here. I don'tthink so. And this ever changing housingmarket isn't making it any.

Easier. With surging mortgagerates, record breaking rents and home prices, a potentialeconomic downturn and other lifestyle considerations.There's so much to factor in. This is an extraordinarilyunique market because of the pandemic. And because there wassuch a run on housing, so you have home prices very high, youalso have rents very high, On average across the 50 largestUnited States metro areas, a typical renter pays about 40%less in rent than a first time homeowner. However, that's notthe case for everyone. We will.

Be paying close to the same amount,but not have any of the amenities. It just makes moresense to make this move. Prospective homeowners andinvestors often travel across the country and sometimes eventhe world seeking more affordable markets. Right now. Afew of those places are Cleveland, Ohio, Pittsburgh,Pennsylvania and Baltimore, Maryland. It doesn't matter if the marketis gonna crash or not,.

Something's gonna happen butwe're not sure what maybe it's gonna be back again. Maybe it'snot we're gonna keep going doing I was at work, and I get a phonecall from Stephanie, and she that. said that they had the evacuateapartment. It didn't register at first. I still get choked upthinking about it. I just raced home and the police tape wasover. I didn't know where she was at her and her and the threegirls were like just in tears. I'm sorry. I don't like talkingabout it.

Leland and Stephanie Jerniganhad to move out of their Cleveland apartment in January2019. A neighboring apartment had a fire forcing them to staywith family for a few days and then a hotel. Just 10 days afterStephanie gave birth to their daughter, Tatum. She slept in her car seat thefirst night because we had nowhere to put her. Leland Jernigan always dreamedof purchasing a home of his own. But that fire put a wrench onhis plans.

We had a little over $5,000saved. We were going to use that to try to get a place a house ofour own. I had to utilize a lot of that money to find a placeand to buy everything else that we had lost. The house was justtotally taken off the table. And as a man, you don't want thatfor your wife and your kids like you want to be able to provide.March 16, 2020 I got a phone call from my boss like hey,we're closing up. Meanwhile, Stephanie was onmaternity leave and demoted as a result of the pandemic. Within afew months, Leland found a new.

Job. While it pays about $20,000less than his previous job. The family is finally back on trackwith their savings. On April 4, 2023. They closed on their firsthome. Tatum talks all the time aboutgoing to the new house going into the new house. Is it ourtime yet? That's what she says. It's not my turn. It's not yourturn. You're right. It'll be your turn soon. Icannot wait to see her face when we walk in the door. After about a decade of recordlow mortgage rates and record.

High home prices. The UnitedStates housing market has slowed down. From January 2022 toJanuary 2023, sales declined by 37%. And while prices increased1.3% during the same time, those numbers drastically fluctuatedthroughout 2022. And while it's often been said that buying ahome is better than renting, it's not as straightforwardright now. In December 2022 in 45 of the 50 largest US metrosit was more cost effective to rent than buy. That's up from 30markets from the prior year. In the top 10 metros that favoredrenting monthly starter.

Homeownership costs were anaverage of $1,920 higher than rents. And the gap is onlygetting bigger. In December 2022. In the 45, areas favoringrenting renters received more than $900 on average, whereas in2021 renters received about half of that. We saw the 30-year fixed go fromless than 3% to over 7% in the course of just one year that'svery dramatic, and that made that monthly payment more thantwice what it was the year before and unaffordable for alot of folks. So that's why the.

Housing market really stuck outin the fall. Interestingly, we did see it bumped back up inJanuary when the 30-year fixed pulled back towards 6%. Peoplereally rushed in – we saw pending home sales, which are ameasure of signed contracts. That's people out shopping forhomes during the month that jumped over 8% in Januarycompared with December, and that was surprising, but it waspeople saying okay, maybe I've got a chance to get in. If we stayed here we will pay$1700 a month we will pay 300 or.

As for the five areas in 2022,and 20 areas and 2021 where buying made more financialsense, families saved about $240 on average in both years. AndCleveland was number one on that list in 2021. While the city hassince flipped to the other side something for storage. Huge areafor my mom a huge bedroom for according to averages, it's notby much. The Jernigans purchased us, the girls to have separatebedrooms that are bigger than this home for $285,000. About$100 per square foot. The average rate on the 30-yearfixed is 6.44% as of April 2023.

The Jernigans locked in 6.625%taking their monthly principal and interest to about $1,800. the ones that they have now. The bottom part is all of yourgrandma's and the top part is all of our bedrooms our bedroomis that big from edge to edge. A huge backyard that Tatum canrun around in, a four car garage. Markets in the U.S. in whichhomeownership offers lower monthly costs include Memphisand Pittsburgh, among others.

Nationally, home prices werehigher at the beginning of 2023 than they were at the start of2022. But that's also constantly changing. So how does one decideduring a time like this? There are of course pros and cons foreach. Let's start with renting. The pros are that you don't needto worry about repairs and you can pick up and move anytime.Cons include giving your money to someone else, building equityon their investment as opposed to your own. You don't have asmuch control over how long you can stay and rent can change atany time, if you're not in a.

Rent stabilized home. You alsohave no say in renovations, construction that I can attestcan be extremely loud, and you're likely limited to howmuch you can change the space to your liking. Moving on tobuying, pros include having the ability to do what you want withthe space, you're investing your money in something that willhopefully appreciate, tax incentives, you could stay aslong as you would like, more financial predictability as longas you have a fixed interest rate and of course, pride inowning your own home. The cons,.

You'll likely be in a smallerspace for the same price than if you were renting if you'rebuying in an urban area and you have a lot more financialresponsibilities, including upfront fees such as a downpayment and closing costs, not to mention property taxes,likely a mortgage, and condo and maintenance fees depending onthe type of home you purchased. The best way to make thisdecision for yourself is to take a closer look at your finances. You don't buy a house based onthe price of the house, you buy.

It based on the monthly payment.That's going to be principal and interest and insurance andproperty taxes. If that calculation works for you andit's not that much of your income, perhaps a third of yourincome, then it's probably a good bet for you especially ifyou expect to stay in that home for more than 10 years. You willbuild equity in the home over the long term renting a house isreally just throwing money out. For the Jernigans thatcalculation looks like this. If they renewed their lease, theirrent would go up to $1,700 per.

Month. Plus they pay $340 forstorage and $50 per month for renters insurance bringing theirmonthly expense to $2,090. But at their new house, theirmonthly principal and interest will be $1,792. Plus mortgageinsurance will be $125 and estimated escrow $447, bringingtheir monthly payment to about $2,365. If you subtract the$1,000 Leland mother's is contributing which is $100cheaper than what she would be paying in rent, that bringstheir total monthly expense to $1,365. This move expandingtheir space threefold and.

Allowing them to take care ofLeland's mother will be saving them more than $700 per month. Most will see their housingwealth grow over time is that 20 years is that 30 years, itdepends on how long you want to be in the home. If you onlyexpect to be in a market for perhaps five years, it might bebetter to rent because that's not a long enough term to seereal housing wealth grow. So it depends on what your trajectoryis for living somewhere versus how much you want to invest.

What makes sense for you andyour family is also going to depend on where you plan onliving. In the first two years of thispandemic we saw a run on what we call the Sunbelt, that is areasthat are in the South. Also areas like Phoenix and Las Vegashuge sales numbers there a huge run on housing and home pricesjumped dramatically. In those markets now we're now seeingthem pull back just as strongly as they jumped. And that'sbecause of higher mortgage rates and lower affordability becauseit's much more expensive to buy.

There. Now, one interestingmarket though that has just been off the charts and is still isMiami, we saw tons of people leaving New York City leavingthe northeast, even California tech workers moving to Miami,and that still hasn't faded. Michael Azzam is the founder ofThe Azzam group. He's from Cleveland, and has been workingin real estate for more than a decade. He quit his job as aregistered nurse and has never looked back. When I started, it was really atthe bottom of where we are, from.

A market standpoint, an economicstandpoint, and it just our trajectory is just continuouslygone up. And I've seen so much improvement and development inthe city. And we've seen that trending with out of stateinvestors coming in residents looking for more affordability. The pandemic made a significantdifference as well, we had never seen this kind of housing marketbefore. Mortgage rates dropped dramatically. And we saw morethan a dozen record lows on the 30 year fixed rate in just oneyear.

So people were able to buy morefor their money, that is their monthly payments were lower. Andthat caused home prices just to soar faster than really we'veever seen before. As markets started to price themselves outpeople look to Cleveland as oh, hey, I get to work from home, Ican be flexible with where I live, I'm gonna go to a marketthat I can afford to buy a nice big house. Years ago, The Azzam Group saw theadvantage of flipping homes in Cleveland. Over the last.

Few years, we've averaged alittle over 500 transactions a year back in 2014 and 15. 60 to70 transactions. We started growing from there, the samehouse at $40, $50 and $60,000 are selling now for $150, $160,$170,000. So you know, there's a So much opportunity, it'sbrought people to Cleveland, lot of opportunity. even from outside the UnitedStates. I'm Dan Issa I moved from Israelto Cleveland for doing real estate, we do around $200 to$300k a year from flipping.

Houses. Ready to go in? Let's rock androll. Got a lot to do here. We heard about it from friends,group of investors, then we look at it more in internet articles,Facebook groups and everything about investing in Cleveland. Itwas like one of the cheapest to purchase the houses and likeit's the percentage what you get back the profit it's very high. 26-year-old Dan Issa moved toCleveland in 2019. His family used money from their realestate business and winery in.

Israel to start a constructionbusiness in Cleveland. Then they expanded to real estate. They've taken themselves as afamily and said, you know what, we're going to make sure thatwe're taking advantage of this opportunity, flying all the wayfrom another country. They're here to do some damage in a goodway. How many homes have you flipped? 15 already. This is their most recent flip.They purchased this home for.

$60,000 and put in an additional$60,000. They re-did the floors, bathrooms, kitchen, windows andeven the roof. After being on the market for less than a week,multiple families were interested and this home is nowunder contract for $195,000. $75,000 in profit. Issa says arehab typically takes about three months from the time theypurchased the property to when they're done. That costs about$50,000 on average. In the beginning of the year, they werelooking at about five houses each week. Their goal by the endof 2023 is to flip 12 houses and.

Have 10 rental properties. Theycurrently rent out three of their properties and the fourththey call home. Do you drink these wines together? Every day and every nightwhenever we drink bottle of wine or any alcohol that we produce. They bought this three bed threebath in March 2022 for $195,000 and put $150,000 in forrenovations. While they spent a bit more on this property thanthey do on the homes they flip, Dan's mother Munira says it cameout exactly how they want it.

Her favorite part, the kitchen. When I make the dishes you seehow wonderful you see the street you see the car you see thegrass you see who's coming. We have open house all the time. Wehave a lot of friends. They come and visit us every Sunday we sitlike here if you see like more than 20 people. We're in love with Clevelandit's awesome. The summertime is beautiful here. The wintertimeis cold and nice. So you have all the seasons.

And do you know if you wanted tosell this right now how much you can get? The after repair value. It'ssupposed to be around $550 or $600. The spring housing market it ishistorically the busiest time of the year for housing. And that'sbecause families want to buy their homes close on them in thesummer and move so they don't disrupt their children and getthem into school in the fall. We are not, however, expecting abusy spring housing market this.

Year simply because mortgagerates have shot up so far again. And because housing inventory isstill so low, so will it recover over the summer? Will it comeback in the fall? It's possible if we get more supply on themarket, but unfortunately, sellers are afraid to list inthis market. Because they see that home prices are easing up.They don't want to catch a falling knife. They see mortgagerates are higher, and they're just concerned overall that theywon't be able to find a house they can afford once they sellthe one they have.

Despite the fact that rentingwill likely be cheaper than buying in most areas of thecountry in 2023, rental affordability is expected toremain a key issue. Low vacancy rates, lagging new construction,and demand are expected to drive rental rates to new highs Over the long term historically,it's always been better to buy a home than rent because you'rebuilding equity in that house. Now have they gone down in thepast during the Great Recession? Of course they have. But again,over the long term housing will.

Grow your wealth. And that's whywe see wealth disparities among those who own homes and thosewho don't. The biggest obstacle we'reseeing is most consumers don't know how easy it is to buy. Theythink that there's so many challenges that are going to beblocking their path to actually getting into homeownership. And what will happen in thefuture is uncertain. As of now I don't see mortgagerates coming down significantly anytime soon. Although forecastsdo have them lower by the end of.

The year. Back in 14, 15 and 16 we sawthere were pockets of Cleveland with very blighted homes anddistressed homes and a lot of those same homes now are updatedI mean frankly beautiful now, it's a testament to all theoutside investments that have been coming in. Cleveland Clinichas attracted a lot of homebuyers. We have residentdoctors moving in from out of state, people coming that areworking for Progressive, people coming in that are working forSherwin William. Job force has.

Opened up a lot of growth forour population, but I don't think we're at the tip of theiceberg here. Hi. Hi Grandma. Did you everthink when we lived on Brightwood that 30 years later,we're gonna be in our own home? No. I always knew you would own ahome. But I did think that I would be moving in with you. Market conditions allowing thisfamily to purchase a home will be life changing in more waysthan one. The Jernigans say.

Their 14-year-old daughterRaelynn still has PTSD from the 2019 fire. As a dad, you want to fix it andyou can't. Well, it sounds like you arefixing it. Trying to. This family is achieving a big partof the American Dream, a life event that in a 2022 survey 74%of respondents ranked as the highest gauge of prosperityabove having a career, children, and a college degree. Meanwhile,it's a full circle moment for Leland who grew up in EastCleveland, his family on.

Government assistance. I came from a single mother homewho struggled to put food on the table and always wanted betterfor her children. It was more criminals and there were police.I told myself that they will not live in an environment likethat. The area that we're moving to is something that you wouldsee and look at and be like I want to get there one day.

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