Should You Buy a Home or Rent?
Published: April 2017
Author: Bank of England Mortgage Staff
Years ago, everyone knew the answer to this question, or thought they did. Owning a home was considered one of the cornerstones of the American Dream. Then we had the housing crash, and a slew of articles advising that buying a home was a scary bet. Over the last several years, that advice has become more mixed, leaving some consumers confused about whether buying a home makes financial sense.
Home ownership is not a one-size-fits-all proposition; the decision to buy is a personal one that hinges on the circumstances of your life, where you live, and how long you plan to stay in one place. Most consumers have by now heard that it doesn't make sense to buy if you plan on staying in the home for less than three to five years; because most of the early payments on a mortgage goes to paying down interest and closing costs on a mortgage can be substantial, a few years isn't enough time to accumulate equity to offset the closing costs. For short-term living situations, renting may be the better option.
Beyond this, the situation gets a little murkier. Don't plan on making a big profit by buying a home and selling it one day. Owning a home can still be a good investment, but you shouldn't expect the value of the home to increase more than the rate of inflation. Over the long term, home values have always tracked pretty closely to the inflation rate; we aren't likely during our lifetimes to see another bubble market with skyrocketing values like we saw in the 2000s, and we probably don't want to see that again, considering the aftermath of the last one. While there are several housing markets in the country where home values continue to outpace inflation, they are in large urban centers such as New York and Los Angeles; the factors in play in those markets do not apply to central Arkansas or most of the rest of the country. Outside of booming urban markets, buyers should expect home values to continue to track pretty closely with inflation.
Purchasing a home can still be a wise investment, especially if you plan to remain in one place for 10 years or longer. In areas where home values are increasing and the cost of renting is close to the cost of a monthly mortgage payment, purchasing a home makes sense. A home purchased with a fixed-rate mortgage represents a known housing cost; rents can and will increase over the course of 10 years. In addition, over that period of time, a homebuyer will build up a substantial amount of equity; if they had rented instead, they would be walking away empty-handed.
The answer, then, is that purchasing a home is still a good bet – if you plan to remain in one place for more than five years, if you buy into an area with increasing values, if the costs of rent are close to the cost of a monthly mortgage payment, and if you're prepared to shoulder the maintenance responsibilities that come with home ownership. Owning a home provides accomplishment and there is no other feeling than that of laying down roots and providing stability. A home isn't just a place to keep warm and dry, it's the place where memories are created that last a lifetime. Bank of England Mortgage is always happy to help educate homebuyers. We'll help you gain an understanding of the mortgage process so you can make the best choices for your home financing goals. If you're ready to take the home buying plunge, locate your local branch and give us a call!