Austin renters face a dilemma when they consider renting vs buying a home. Making the leap into home ownership in one of the nation’s hottest real estate markets can seem like an intimidating feat. Renting has some benefits, such as the freedom from paying for major appliance repairs or home maintenance costs if a problem comes up. On the other hand, your hard-earned money is building wealth for somebody else each time you pay your rent.
According to David Brodsky, broker/owner at David Brodsky Properties, potential homebuyers need to consider an important feature of today’s real estate market: historically-low mortgage rates. “Obtaining a home loan is still very affordable,” says Brodsky. “Many first-time homebuyers that I consult don’t realize that at one time, nobody thought interest rates would drop below 10 percent. Right now, interest rates are still below 5 percent. So it’s a great time to get a home loan if you can qualify.”
Renting is More Costly Than Buying
Conversely, it seems that rents are ratcheting ever higher each year. Based on numbers from the annual Trulia Rent vs Buy Report, buying is 33.1% cheaper than renting nationally. Major factors that make buying less costly than renting include the low-interest rates Brodsky mentioned. “With rents and home values previously moving in tandem, shifts in the rent versus buy decision were largely driven by changes in mortgage interest rates,” the Trulia report stated.
It appears that renting will prove to be a costly endeavor for some time, too. Per the most recent Apartment List National Rent Report, national rent increases this Summer have surpassed the increases seen in the Summer of 2016. This Summer, rents increased at a rate of 2.9%, which is .5% higher than the rent increase of 2.4% last Summer. Though the 2017 rent growth is lagging behind that of the staggering rental rate spike of 2014, rental rates could be on trend to continually increase year-over-year.
Rents Will Likely Continue to Increase
Bolstering the increasing rents in Austin is a strong jobs market and a dearth of housing inventory. As hiring in the Austin area remains stable, newcomers are moving to the area looking to take advantage of the jobs market. This increases the local demand for housing. Developers, however fast they have been able to produce new homes, aren’t able to keep up with the overwhelming demand. So some would-be homeowners have opted to rent before buying an Austin area home.
Although high demand has caused home prices to make strong gains, the currently-low interest rates keep mortgage payments at or below the cost of rent, in most cases. An additional consideration on renting vs buying is equity. In the current market, renters who pay higher rent than a mortgage payment are paying more for their home every month than the typical homeowner and renters aren’t seeing any long-term benefit by way of equity accumulation. “As long as demand remains high and inventory remains low, home equity and rents will likely continue to strengthen,” says Brodsky. “So one needs to think about which they’d rather have: higher rent or more equity.”
New Homes Can Offer Great Value, Security
Another great opportunity that homebuyers could take advantage of in the Austin area are the abundance of new home communities in and around Austin that is eager to fill sell their newly-built homes. Developers have been working hard to meet the demand for Austin area homes. Since the suburbs have the most developable land and less stringent development processes, home builders have been able to produce quite a bit of supply just outside the City of Austin.
Buying a newly built home can present a great opportunity for first-time homebuyers. New homes often come with a builder warranty. Typically, the warranty is very extensive for the first year or so, and then covers the structure for about ten years after that. Each builder offers their own warranty, so homebuyers should check with each builder about the warranty they offer. As far as home price goes, builders are happy to put a home on the market but not as happy to have it sit vacantly.
Sometimes, even in a strong real estate market such as the one here in the Austin area, homes don’t sell right away. Builders and developers don’t like to have unsold inventory sitting for long periods of time. For that reason, a homebuyer can often get a great deal on a brand new home with a warranty. Getting the best deal possible with a great warranty is more likely if a buyer works with a competent buyers’ representative. In some cases, a buyer may have equity in their new home when they make their purchase. That type of scenario makes the renting vs buying dilemma a lot easier to conclude.
Last But Not Least: Home Equity Growth
Paying for housing is a necessity. But paying for housing without any future financial benefit is not a necessity. Probably the strongest argument for buying over renting is the factor of home equity. A home purchase allows the owner to build wealth through home equity growth. Renting a home allows the landlord to build wealth on the renters’ dollar. Considering the strong Austin economy and the future economic and real estate outlook, a homeowner will likely see strong equity growth over the next several years.
“Depending on the specific situation, someone who has the ability to make a down payment and qualify for a home loan would be better served by purchasing an Austin area home,” explained Brodsky. “Home prices remain strong. Rents continue to climb. Low-interest rates are really presenting a great opportunity for aspiring home owners to make a home purchase. The same goes for would-be real estate investors. It could be a great time for someone who has been thinking about investing in real estate to make the investment and benefit from a renter paying your mortgage.”
For help determining if now is the right time for you to make an Austin area home purchase, contact David Brodsky Properties for a complimentary real estate strategy session. An experienced real estate strategist will reach out to you. Especially for first-time home buyers, having an experienced real estate professional on your side is crucial to a successful transaction.
Read more about Austin real estate.