According to the Federal Reserve¹, millennials (those born between 1981-1996) represent the largest population of homebuyers, yet only 11% of millennials owned real estate in the U.S. in 2020. However, as more millennials approach more stable careers, lower debt, bigger families, and the need for more greenspace, homeownership starts to cost less than renting (at least in the Pittsburgh area). In 2020, a study was conducted by Attom Data Solutions in U.S. markets on home affordability. Pittsburgh was deemed a market where it’s more affordable to buy a home, than rent in 2020.²
So if you, like many, are on the fence about owning or renting a home, we have some advice on how to best make the decision.
Housing expenses—whether rent or mortgage payments— usually represent a family’s largest financial expense. Financially savvy individuals may wonder whether their current living situation offers the best financial choices for them. Deciding your next move pushes many to question the relevancy of old adages about renting and owning—especially in the Pittsburgh area.
Purchasing your first house ranks right up there as one of the most important milestones of adulthood. For generations, we heard that owning was always better than renting, prompting many into decisions they weren’t ready for. More than a few homeowners purchased homes simply because they thought it was something they were supposed to do. Regardless of your status in life, deciding whether to buy a home can be an emotional decision or a decision based on expectation. This is especially true if you find visions of owning the American Dream tugging at your heartstrings.
Instead of letting emotions dictate your decisions, we recommend using objective measurements to take the guesswork out. You can’t simply compare the check you’d write for a month’s rent versus the check to a mortgage company. The cost of owning a home expands to include additional costs such as property taxes, homeowner’s insurance, HOA fees, and maintenance. Also, any repairs or replacements that falls outside of normal maintenance also falls of the shoulders of the owners. As an owner, you find that out quickly when a water line or hot water tank blows and leaves several inches of water in your basement. As a renter, you may have no idea how much it costs for a new hot water tank and cleanup. A security deposit on a rental home usually amounts to first and last month’s rate. That security deposit pales in comparison to a down payment, typically 5% or more, of the purchase price of a house.
Putting a tally in the home ownership corner, your mortgage interest is a tax write-off and you gain equity in a home that you can see back in the future. In years like 2020, appreciation can skyrocket making your home more valuable and the cost of owning a home more beneficial; however, most years it has appreciated a little more than the rate of inflation. If you want to invest in equity, home buying is the way to go—providing it’s in the right neighborhood. Look for high ranking schools, amenities, and business growth to fuel your home’s future value. As they say, location, location, location. It makes a difference in your investment.
Typically, what’s the greater challenge for most prospective homebuyers? Is it A: Meeting the debt-to-income qualifying ratio OR or B: Having enough funds to close the transaction?
The answer is B. Most prospective homebuyers have a greater challenge providing sufficient funds for the down payment and closing costs when purchasing a home. Knowing the costs associated with home ownership can help you make an informed decision. Preparation is the key! Prior to starting your new home search, meet with a realtor or mortgage professional to discuss the typical costs for down payment and closing on a home. They can pre-qualify you to determine what you can afford and provide you with a basis for the amount of funds you’ll need to complete the purchase. This will give you your best opportunity to find the home you desire and can afford.
When you do the math, you’re going to find it also greatly depends on where you are renting and buying as to which works more to your advantage. Remember, in the Pittsburgh area today, it’s generally more affordable to buy versus rent; however, you have to be careful as that is not the case across the country.
Researching your market will have a large impact on the renting vs. buying debate. When doing your research, see how home prices have fared over the past decade. Also consider how long you plan to stay in your new home and mortgage interest rates. These are all factors that should weigh into your decisions. A general rule of thumb is, if you don’t plan on staying in your home for at least five years, you may not recoup your initial investment.
If you have questions or are thinking of home ownership, Standard Bank’s friendly and knowledgeable mortgage loan experts can help. They can help walk you through what additional expenses you may run into to purchase and maintain a home. They also can share details about special programs you may qualify for as a first time homebuyer. Those programs may offer rate discounts, closing cost assistance, and other benefits. Visit our Lending Center to learn more, apply online, or download our home loan solutions booklet.
1 Federal Reserve. “Real Estate by Generation.” Last modified March, 19, 2021. https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/table/#quarter:119;series:Real%20estate;demographic:generation;population:all;units:shares
2 Attom Data Solutions. “Owning A Home More Affordable Than Renting in Nearly Two Thirds of U.S. Housing Markets.” Last modified January 7, 2021. https://www.attomdata.com/news/market-trends/home-sales-prices/attom-data-solutions-2021-rental-affordability-report/