Rent or Buy? Do Falling Rates Change Anything?
A rent-versus-buy calculator can help potential homeowners determine if they can afford a monthly house payment or should continue to rent.
NEW YORK – With the recent reduction in benchmark interest rates by the Federal Reserve, American renters are calculating the cost of buying a home, even as the average 30-year mortgage rate only dropped to just above 6% and home prices remain high.
Rents also are high, but the gap between monthly payments is still hundreds of dollars apart. Nick Villa, an economist at Moody's, estimates that to buy a home with an average monthly mortgage payment of $1,840, close to the average monthly rent, the $419,000 home would need a 30-year fixed mortgage rate of 5.25%.
Renters are currently still priced out of homeownership, and homeowners are less willing to put their houses on the market for fear they won't sell for the best price.
Many homeowners have mortgage rates of 3% of less, and the current rate decline is unlikely to entice them to sell, further limiting available housing inventory. Using a rent versus buy calculator can help potential homeowners to determine whether they can afford a monthly payment for a house, but that's not the only cost of homeownership.
Homeowners must pay a down payment and cover taxes, utilities, repairs and insurance costs. Renters, on the other hand, do not build wealth with their monthly payments but they do have greater flexibility if they need to move.
Source: Wall Street Journal (09/28/24) Dagher, Veronica
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