With interest rates and home prices expected to climb in the next year, the financial penalties of delaying or forgoing a home purchase in today's market have become very steep, according to the inaugural Opportunity Cost Report released by realtor.com®, a leading provider of online real estate services operated by News Corp subsidiary Move, Inc.
The proprietary report examines a wide range of factors, including the long-term financial impact of owning versus renting a home, the likely monetary gain renters forego in waiting to buy and the financial benefits of homeownership by market.
"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®. "The problem is inventory is low, which has many would-be home buyers – especially first timers – standing on the sidelines and missing out on potentially material financial gains."
Nationally, the estimated wealth an average buyer would accumulate over a 30-year period based on today's dollars totals $217,726. Although some markets are more buyer-friendly than others, national data shows homeowners see significant financial benefits as compared to lifetime renters. In 88 percent of MSAs, buying a home produces a financial benefit of at least $100,000 over 30 years.
Ten markets offer an especially considerable upside to owning, with estimated 30-year financial gains above $500,000, and opportunity costs of waiting three years as high as $200,000. These MSAs, in California and other Western states, are relatively expensive markets with strong housing demand and limited supply. The potential long-term wealth in these areas is the greatest nationwide, and likewise, the long-term financial penalty for delaying ownership is substantial, due to price appreciation, escalating rents, and higher mortgage rates on the horizon. (An analysis of the Top 100 MSAs follows.)
"This analysis looks solely at the financial reasons to buy a home, based on assumptions about rising mortgage rates and changes in home values," Smoke said. "It's important to remember that a home purchase decision is deeply personal. Potential buyers need to consider factors such as upcoming life events, job security and potential relocation, in addition to financial benefits, because they too can have a significant impact on ownership."
About the realtor.com® Opportunity Cost Report
Realtor.com® analyzed the 382 largest markets in the U.S. using data on current median existing home prices, rents, local mortgage rates and estimates of property tax and insurance rates, and factored in maintenance costs, costs of selling, and forecasts for mortgage rates, home prices and rents over a 30-year time horizon.
Source: RISMedia