Buying real estate in this market is still a very difficult task for many these days, especially new home owners or first time home buyers. That being said, if you can actually afford it a recent study has shown you'll be better off financially buying real estate compared to renting real estate in the long run.
This latest report looked at approximately 300 real estate scenarios and assumed that buyers involved in these real estate buying transactions had the 20% down payment amount necessary to avoid additional mortgage insurance costs. The report was designed to measure the net cost of ownership, being the total ownership cost minus the saving that occurs through the principal payment period.
It ultimately concluded that buying was financially beneficial 91% of the time for these specific cases being looked at.
While it's still important to keep in mind that total monthly costs for owners may be slightly higher than those for renters, it's where the money goes that makes the real difference. With a mortgage the principal component is a form of forced savings so it isn't really considered a cost to the home buyer.
The effect is even more profound the longer one owns a home because interest is the largest component in the first month and gradually goes down during the course of the loan.
Even if mortgage rates rise dramatically in the next year or so, buying is still the way to go. The report also looked at this scenario, analyzing various mortgage renewasl in five years at 3.62% interest rate — the highest rate since 2014 — and ownership still wins.
It also found that even with a 10% drop in home prices, about half of the homeowners would still see a positive return on their investment.
The 9% of scenarios where renting ended up being more beneficial were all concentrated in luxury homes in expensive neighbourhoods. But even in those cases, the extra benefit was very minimal.
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