I’ve been looking at property in another state since last December, but just haven’t been able to pull the trigger, as I feel prices and interest rates are still too high.
But now that housing prices have been dropping…
… and mortgage rates have begun to decline (averaging 6.74% for the 30-year rate today), with experts predicting that the Federal Reserve will knock rates down a couple more times by the end of the year, I’m itching to go ahead and buy.
The graph below shows current mortgage rate estimates through the end of 2026.
As you can see, the rate decreases are slight, but forecasts say they may be down to around 6.2% by the first quarter of next year.
As of July 25, the Fed says the average sales price of a home in the U.S. is $512,800. And while the rates aren’t dropping substantially, a decline of 54 basis points can mean a savings of $145 a month.
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When I started this process last year, economists were predicting that mortgage rates would be around 5% by the end of this year. In the above example, that would mean a savings of a whopping $460 monthly!
Alas, that 5% is not happening anytime soon, so I’m trying to make up my mind.
But now, another dilemma has arisen. The area I’m interested in has pretty reasonable rental rates right now. So, I’m asking myself, should I rent for a couple of years and buy when (if) the rates do come down to 5% in the next few years?
Buying vs. Renting
I’ve had plenty of real estate customers who decided—once they reached a certain age—that it makes sense to sell their homes and rent for the remainder of their lives, for two primary reasons:
1. When you rent, you don’t have to pay taxes, or (usually) HOA fees, insurance on the dwelling, or for maintenance and repairs—expenses that average $15,391 per year, according to Bankrate.com.
2. With no home ownership, estate dissolution is much easier for your heirs, since they won’t have to endure probate on a home or worry about selling a huge asset that is probably located somewhere they are not.
I found a great site with a calculator that compares renting vs. buying: https://www.nerdwallet.com/calculator/rent-vs-buy-calculator.
I wasn’t really thinking about renting permanently, but this calculator is interactive, and you can look at the comparison over a 30-year period.
With that in mind, I thought it might be interesting to see how many more years I might live, so that I could see the rent vs. buying comparison over an extended period of time. So, I consulted a couple of longevity calculators:
A quick and easy one is from the Social Security Administration, but it only considers your sex and birthdate—just a quick and dirty calculation.
But this one, from Livingto100.com, is much more comprehensive, asking about your family history, your health, weight, height, and habits. Even with all that information, it only took me about 10 minutes to complete.
Interestingly, the second calculator made me feel a lot better than Social Security’s site, extending my remaining lifespan by about 30%!
So, now that I had the longevity information, I went back to the rent vs. buy calculator, and concluded that seven years after a home purchase, considering current interest rates, the price of the home I want to buy, and my downpayment, I’ll break even, and it will make more sense for me to buy, based on my longevity calculation.
That is, of course, if I plan to stay in the home for the seven years. I do, I think!
I love numbers and comparisons, so they are always where I turn when trying to make any kind of financial decision. However, in the case of renting vs. buying, there are a few other things to consider:
- You’re not sure how long you will live in the home.
- You don’t want to deal with maintenance and repairs.
- You want lower monthly payments (this is usually the case in the first few years, as the comparison calculator will tell you).
- It may be smarter to invest your cash rather than build equity. The average annual return of the S&P 500 Index for the past 20 years is 8.4%. The average home price has increased 4%-5% over the same period of time. If you are looking for an asset to enrich your heirs, investing is usually a better deal.
Additionally, you have to consider the opportunity cost of home ownership (outlined above), as well as the initial down payment and closing costs, which easily set you back $20,000-$60,000 (or more). If, instead, you invested that money in the stock market (and of course, did well), you would most likely be further ahead, financially speaking.
I’m still thinking about it. But at least now, I can run the numbers with some confidence.
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