Written by our agent Katie Ferriello.
There’s a recent alarmist article in the Salt Lake Tribune suggesting that people should rent rather than buy.
Here’s why I disagree with that take:
Since 2000, the median sales price in Utah for homes and condominiums has averaged over 5% growth annually. At that rate, the price of a home doubled every 13 years. I know there is some talk that sales prices will drop drastically, but experts actually predict appreciation for next year of between 2 and 4%.
The current mortgage rate is 6.5%. While that might feel astronomical compared to recent rates of closer to 3%, it's important to remember the average historical rate is 7%.
So this isn't a terrible interest rate. It’s an average rate. We’re just not used to it because we have had artificially low-interest rates the past few years.
Will your mortgage payment be higher than today’s rent? Yes. It probably will be. But that is a temporary problem compared to renting when you consider the fact that rent is expected to increase annually. In most cases, buying a home actually fixes your costs, because as rents increase, your fixed mortgage rate will stay the same. So within a few years, your mortgage payment will likely be lower than the average rent. With an expected growth rate in Utah from 3.151 million to 4 million by 2032, it's hard to imagine that home inventory is going to improve any time soon.
While we never recommend our clients overextend themselves, there are many creative ways to adjust to a changing housing market. Managing your expectations is important. If current interest rates are preventing you from buying your dream home but you still want to get into the housing market, consider opting for a condo or a smaller property as a starter home. Purchasing a starter home with a rentable room or mother-in-law apartment that you can share with a friend, family member, or renter is a great way to extend your mortgage payment capacity and your cash flow.
When it comes to financing, consider exploring other loan options besides 30-year conventional loans. You may be able to have a lower payment in the first few years with an alternative home loan, like an ARM Loan or a Rate Buydown if it makes financial sense for you.
The takeaway is, if you know you want to get into a house, you can get creative in order to achieve that goal. You can always explore refinancing once rates drop, and while you are at it, you're building equity.
For some of us, renting may be a better alternative than buying right now. Know your limits and don't overextend. But be sure you reach out to your agent to get yourself educated and consider all the possibilities before stopping short of your goals and dreams.
*For more research, look at the chart on page 8 of this housing market report from the Ivory Boyer Real Estate Center at the University of Utah or this chart from the US Census on Median and Average Sales Prices of Houses Sold by Region.
