What Do Economists Think About Buying Vs Renting A House?

To buy or to rent - this is a big question that has been on the minds of people for many years now. Any potential home buyer often tends to wonder whether buying a house is an economically sound decision or whether they should just continue to rent. While the common wisdom of the ages has always said that buying a house is a great investment, with the changing economic landscape, this 'wisdom' is now no longer proving to be valid. Both home buyers and home sellers are now taking a long hard look at the actual economics of purchasing a home.

What does Market Statistics Show?

According to Brian Belcher real estate agent, the housing market has appreciated by an average of 4.5% annually. The estimate, when taken from 1980, shows a three percent annual increase in value but just a little bit above zero after it is adjusted for inflation. Meanwhile, the stock market has had an average return of 9.8% including dividends. If you get a price increase on the homeowner's equity then it becomes a great deal for you. However, if there is a price decline, then it is going to wipe out a home buyer's equity, especially taking into account the down payment as well. The recent housing bust is a great example of this.

Interest on Home Mortgage Plays a Big Role

Yes, the interest on your home mortgage is deductible. But this idea is frequently overrated according to many top realtors. A top realtor suggests that the deductibility of the interest does not offset the fact that you are paying someone interest at the end of the day. It is ultimately an expense. So better talk to your accountant before going ahead and thinking that you are actually benefiting from the interest deduction on your mortgage.

Benefit from Living in a House

If you come to the actual finances of it, living with a means it is something like a dividend that you can live in without of course paying rent. To be as good an investment as stocks, you need to derive a benefit from living in a house of approximately seven percent. This means that if you have a $200,000 home, you need to get a benefit of roughly $14,000 annually just from living in it. This is comparable to $1,167 of rent on a monthly basis. Add to this number the amount of money you spend on a yearly basis on the maintenance of your home, and you will suddenly wonder whether buying a house was actually a good investment or not. 

Huge Transaction Costs that you pay for

Transaction costs of top realtors or real estate agents are huge in the housing market. Brian Belcher real estate agent charges anywhere between six to seven percent commission on sales. While you can sell or buy a house yourself also, it usually involves too much work and documentation that no one has to time to deal with. A top real estate agent in USA also guarantees that you will get the best price for the house. The commission you pay a real estate agent can easily go towards something better.

As you can clearly see, buying a house is no longer as attractive an investment as it once used to be. However, bear in mind that under the right market circumstances, buying a house is still considered to be one of the best investment decisions one can take. For example, 2017 is definitely turning out to be a home owner’s market. So, if you want to buy a home, there is no better time than now to go ahead with the investment.