Most young frum couples think about buying a house at some point and many try to grab one as soon as possible. Housing decisions are the largest financial ones for most families and can be quite knotty. Some contrarians argue that home purchasing is driven solely by a herd mentality. They feel that instead of making large down-payments, and expensive home repairs, renting and investing the savings can be as good a path, without the headache and burdens of home ownership. Home prices often fall too and the benefits of home ownership are overstated, is their position. We generally disagree with this view and here’s why.
While it is mistaken to rush to buy a house, once a family has a good idea of their future income and housing needs, they will almost always be better off buying a house versus renting an equivalent one. Though coming up with a down payment and getting through the first few years of a mortgage usually requires some serious belt-tightening, most find that it’s well worth it financially. Here are some reasons to prioritize buying a house over renting.
Forced Savings
Yes, you’ll probably have to scratch together an extra couple hundred dollars a month to pay your mortgage versus an equivalent rental fee, but all that extra money is often going right back into your pocket by paying off the loan’s principal (i.e. amortization).
And while in the short run, you might have more cash flow to pay the bills by renting, but without the forced discipline of a monthly mortgage payment, you may struggle to put away money at all. You can save no matter what if you have the determination to, but when saving competes with tuition, braces, and camp, the day-to-day grind usually wins. Indeed, most Americans have virtually no savings beyond their home equity. As years go by, more and more of each mortgage payment goes to equity, and the owner’s net worth will be growing steadily.
Rent Goes Up. Mortgages Don’t.
Prices tend to go up due to inflation and increased demand for housing, and you will find that with time, your rental payments will rise, first to equal and then to surpass mortgage payments. Buying a house locks in most of the cost of housing for life (though not property taxes and maintenance, unfortunately) which in the long run enhances a family’s financial security. There are many cases of families in Brooklyn and Yerushalayim who after years and decades, due to spiraling rents, were forced to cut back on necessities or even move out of their neighborhoods. Discounted housing expenses of renters will probably fade into history at some point as rental costs rise unchecked.
Home Prices Will Almost Certainly Rise Over Time
While values in your neighborhood may not have risen in the past few years, that’s often because the market is taking a breather from significant growth in the decade prior. People tend to be too shortsighted when considering market cycles, and negativity about real estate is large driven by the same forecasting error made by those buying too early, but in reverse.
The latter look back at recent quick rises and expect the good times to continue steadily, while some is look at current stagnation and expect the same in the future. In reality, while markets may ebb and flow significantly, over long periods they mostly average out. Data shows that decently located real estate tends to grow by a few percent annually, and even in the weaker Midwestern states, the price of housing has appreciated significantly over the decades. Although renting can make sense in the short run, it misses out on real estate’s excellent long-term growth potential.
A House Is a Backup Asset
While not ideal, tapping into home equity- the accumulated effect of forced amortization, saving, and price increases- is often a necessity. Life has its twists and turns, and as families grow, careers change, businesses are opened and closed, and through simchos and tragedies, it’s comforting to have a backup source of significant cash. Real estate is considered the most secure form of collateral, and homeowners can tap into their built-up equity much more quickly and cheaply than taking out any other type of loan.
Having an asset to back up other financial needs is a benefit that permanent renters will probably miss greatly at some point or another. It takes character to be a contrarian, but so does conceding when the herd is right!
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