Is There Any Good Argument for Purchasing a House Right Now?

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Filed under: Market Comentary

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The housing market is insane right now. It doesn’t matter where you are: Northern California, Southern California, Seattle, Idaho, etc. All of the markets that I can get data on are exploding right now. Of course, now there is a steady stream of people saying that it’s a terrible time to buy – it’s a bubble and we are going to crash.

Are We in a Bubble?

Let’s look at the real numbers and try to figure out what is happening. It’s possible that we might be in a bubble right now, who really knows? It’s hard to tell where things are going to go from here. None of us really knows.

There is a very strong argument for this continuing for at least another couple years. That’s a whole different conversation for another video.

Rent vs Buy Scenario

Today I want to look at a simple rent vs. buy scenario, over a 10-year timeline. I assumed a $600,000 purchase price, and that house today would probably rent for $3,200 (we’ll use that as year-1 rent). Assuming an annual 4% appreciation for the house – we’re way higher than that right now – but using it because it’s a historical number. Then, I’m using a 3% annual increase for rent, which is also a low estimate right now.

Rent will continue to go up every year – which means that rent will be $4,590 monthly in 10 years. If you just look at the money you would pay for rent vs the mortgage, you would actually end up $52,000 ahead because by year 3 or 4 the housing payment is less than the rental payment.

The rental market is out of control too – one of the only things harder than finding a house to buy is to find something to rent right now.

Over that same 10-year period, you would amortize $125,000 – which puts you about $175,000 ahead compared to renting. The net gain on the home at 4% appreciation works out to be an additional $280,000 in 10 years.

Don’t Let Emotions Get in the Way

In a time like this, it’s easy to be emotional about whether or not to buy a property. When should you get in? Here’s what I know: you can never time the market perfectly. You can sit on the sidelines and wait and see what happens, but what if 2 more years go by of appreciation like we’ve seen the last year and a half?

There is an emotional side to consider. But if you have a long-term perspective and have time to ride it out – most definitely, see what you can do to get yourself in the market. You’ve got to live somewhere, and you’re going to pay to do it. It’s crazy to keep paying rent and miss out on the equity benefits of homeownership.

Have questions? Contact me any time and I’m happy to discuss your personal situation.

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