How much do you lose every year you rent instead of buy?
A report from Realtor.com breaks down how much money potential homebuyers stand to lose by renting for another year.
It can be a battle just to find a home to buy right now in the Boston area, with the pickings slim amid a shortage of homes for sale. Even modest homes draw multiple bidders, brokers say.
But throwing in the towel could prove costly too. A new report suggests delaying the purchase of a home by a couple years could cost buyers tens of thousands of dollars.
And the penalties that come with delay are some of the highest in the country in the Boston area, given the combination of soaring home prices and steadily escalating rents, Realtor.com contends.
Thinking of waiting until next spring? Get ready then to wave goodbye to more than $23,000. Put off buying until 2018 and the tab rises to nearly $70,000, the study finds.
“Current market conditions give buyers the opportunity to build substantial wealth in the long-term, compared with renters and later buyers, in advance of the projected increase in mortgage rates and continuing price appreciation,’’ said Jonathan Smoke, chief economist for Realtor.com.
If home prices keep climbing
While a $23,000 penalty for delaying just one year sounds extreme, Smoke, who crunched the numbers, insists they all add up.
Projected increases in home prices are one piece of the puzzle, rising to thousands of dollars over just one or two years. In relatively wealthy Middlesex County, home to many of the affluent western suburbs, prices are up 5.85 percent so far this year, to a median of $434,000, reports The Warren Group, publisher of Banker & Tradesman.
A similar price increase over the next year would push the median price up more than $23,000 for a home in the western suburbs.
In Suffolk County, home to Boston, prices are up 4 percent so far this year, to $385,000, Warren Group stats show. Another 4 percent would push that median price to the $400,000 mark, costing the buyer another $15,000.
The study also takes into account the loss of potential mortgage interest rate deductions homeowners use to lower their tax bills, as well as the cost of spending another year in an apartment at time when rents are also escalating, Smoke said.
Interest rates and rents
The likelihood that interest rates will begin to rise over the next few years is another cost baked into the calculations, Smoke said.
The difference between today’s rates, in the 3 to 4 percent range, and more historically normal rates, in the 7 to 8 percent range. can add up to 30 percent of the cost of a monthly mortgage payment.
But those who never buy, and rent instead, face the biggest opportunity costs, the Realtor.com report argues.
Boston-area homebuyers come out ahead of lifelong renters by a hefty $212,909, according to Smoke’s number crunching.
“Boston is definitely above average nationally, being an attractive jobs center with a reliably high cost of housing,’’ Smoke said. “It completely fits the profile and why it is above average for the one and three year opportunity costs.’’
Not everyone is jumping on the bandwagon, though.
Sam Schneiderman, president of the Massachusetts Association of Buyer Agents, agrees generally that buying beats renting.
But homebuyers need to base their decisions on what is the best choice at that particular time for themselves and their families. That means thinking hard about everything from what kind of home they can be happy in over the long-term to their job security and the state of their finances.
“I think it’s too academic,’’ he said. “It’s not what the whole buying process should be about.’’
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