__Before making the biggest financial decision of your life, it’s a good idea to get all the facts. For most people that’s whether to buy a house. The more information you have, the more likely you’ll be to make the right decision.__

Proverbs 11:14 tells us, *“Where there is no guidance the people fall, but in an abundance of counselors there is victory.”*

That statement is, of course, true. But it’s also wise to take advice with “a grain of salt.” Not all of it is helpful. After the housing crash of 2008, when we saw home values plummet and stay low for several years, many experts advised people to not look at their home as an investment, but simply as a place to live.

That perhaps gave comfort to some, but it certainly didn’t help anyone who needed to sell their home due to a job transfer or the inability to make the payments. They were stuck.

While it’s easy to say that a home isn’t an investment, it has many of the same characteristics. You’re putting money into it, like an investment and in the case of a home purchase, a *lot* of money. Also, like an investment, you never want to see the market value of your home decline, because if you have to sell, you’ll be taking a loss.

__The housing market today is still very busy, even though it’s beginning to show signs of moderation. “Would be” home buyers are still faced with a tough decision, to buy or not to buy and just keep renting.__

The *Wall Street Journal* did an [analysis](https://www.wsj.com/articles/is-it-better-to-rent-or-buy-what-to-do-in-a-hot-housing-market-11652312186) of the current market to answer that question and the most obvious finding was that anyone buying a home today will have to wait a good deal longer for the investment to pay off. That means buying a home is not just more expensive, it’s also more dangerous because the time needed to “break even” is significantly extended.

To determine the length of time for breaking even, the analysis compared the cost of buying a home to the cost of renting a similar unit. Both of those numbers have shot up since the pandemic hit. Rents across the country have risen sharply, but the price of homes has gone up even more. The cost of renting a single-family home went up over 13% in February compared to last year, but home prices increased 20% in March over a year ago.

In The *Wall Street Journal* analysis, the break even point is where the cost of owning a home matched the cost of renting the home over the same period. It found that in Austin, Texas, for example (a very hot market, by the way), you’d need to stay in the home 5.6 years before reaching “break even.” That’s assuming a 10% down payment with a 30-year, fixed-rate mortgage at 5%. That’s a huge jump over the 3.7 years it took before the pandemic.

Of course, the results vary by market. In Miami, the cost of renting has outstripped the rise in home prices, so the time needed to break even actually *decreased* a bit, to 2.3 years. That is, if you can find a home you can afford in Miami.

The take home message (pun intended) is that if you buy a home now and then have to sell in the near future, you’ll likely be in for a big loss.

Consider again that hypothetical home in Austin, Texas with the 5.6-year span of time needed to break even. The analysis showed that if you sell the property after 3 years, you’ll lose $30,000 compared to what you would have paid to rent over the same period.

That’s due to all the added costs of home ownership, such as closing costs, private mortgage insurance (because you didn’t put down 20%), property taxes and maintenance. Those expenses would be *greater* than the estimated appreciation on the home’s value. That’s not to say you shouldn’t buy a home in today’s market, but you should know what you’re up against.

Two things can help you avoid the potential for losing money. First, don’t buy unless you have 20% of the home value saved up for a down payment. That eliminates the need for private mortgage insurance. Second, don’t buy unless you are reasonably sure you’ll be in the home 5 years from now. Those two factors should give you enough equity to at least break even if you have to sell.

FaithFi

Articles

Before making the biggest financial decision of your life, it’s a good idea to get all the facts.

SPENDING | May 11, 2023

To Buy Or Not To Buy (a House)

By: Rob West & Jim Henry

Where Faith Meets Finance

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