The biggest question for many young Americans starting out in life is whether it’s a smart play to keep renting or if now is the time to jump into the property market.
Only a few years ago, this would be a simple question to answer because money was cheap with rates in the 2% to 3% range.
Today, rates are around 7% and the lack of properties coming onto the market has either stabilized values or pushed them higher. That’s not the killer argument for sitting on your hands, though.
The National Association of Realtors predicts four rate cuts this year, starting around July. Rents have also been on a steep incline. Zillow says rents are up 29% since the beginning of the pandemic.
Here are some considerations for breaking into the property market now.
Build wealth
When you pay down a mortgage, you create equity in your loan. Over several years, the equity becomes substantial. You’ll be able to use it to buy a bigger home down the track. The property itself will likely gain in capital value, too. So you’re winning twice.
Compulsory savings
The discipline of paying a mortgage can act like your own savings scheme. When money experts are asked for the best way to build wealth, most will always recommend paying down your mortgage as quickly as possible.
Dead money
This is a common phrase for your rent money. Once it’s gone, you’ll never see it again. And rents are rising. Zillow forecasts a single-family home will cost almost 5% more to rent this year than in 2023.
Control costs
If you decide on fixing the cost of your mortgage to the level you can afford today, then you’ll not have to deal with market movements, or any rental crises that might increase rents and put you in a situation such as the 29% post-pandemic hike.
Your freedom
In rental accommodation you are governed by landlord rules which might range from preventing pet ownership to a ban on hanging pictures on walls. When you’re in your own place, no one looks over your shoulder. No one tells you what you can and cannot do.
Tax perks
You’ll potentially enjoy tax benefits from purchasing a home. Owners who itemize deductions can write off interest payments on their mortgage, so long as that loan isn’t valued at more than $750,000. Ask your financial adviser for tax benefits that might be available to you.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.