The Seacoast BankNote

To Buy or To Rent: Factors Informing the Decision in 2019

Posted by Seacoast Bank on Jun 28, 2019 8:00:00 AM

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A debate like this never actually ends. Housing agreement options are changing on a daily basis. In 2019, your decisions will be based on your personal finance and the marketplace. Ultimately, the time-sensitive decisions you make will likely come down to these three components: 

Residential needs

You’re going to move to an area based on all the things the surrounding community offers. That’s why you’ll make your decision based on the housing agreement options in the community sphere you need for your lifestyle. 

Affordability

Your decision will be based on what’s realistic for your budget in 2019. What can you afford within the next several months? 

Goal-Targeting vs. 2019 Market

You may be ready to start setting big-scheme long-term goals this year. What do those goals look like when compared to the 2019 marketplace?

Can you realistically begin your goals with the options that are available today? This will affect your decision. Other than these basics, you will need some intricate data to make an informed decision. The following information makes a statistical analysis of the marketplace. 

2019 Based Issue Factors 

During your shopping period, you will likely encounter timely effects of 2019. These factors are political, socioeconomic, and more. They are complex. Some are carried over from other decades, and some are unique to this year. 

This month Zillow took a census to determine whether residential consumers should buy a home in 2019 or wait until 2020. This is a frequently asked question, made on a yearly basis by real estate purchase decision-makers. 

There is no concrete consensus on this issue. Many financial professionals recommend moderate income earners wait until next year. 2020 is predicted to have a more stable housing market.

Tax deductibility and volatile political factors 

2019-2020 will be a politically unstable year. The US Presidential election is closing in for Fall 2019. In the case of political instability, taxation policies are often reexamined. This will have a reflection on the buyer’s market. 

A look at tax deductive numbers

How far did the market anomalies noticed in New York actually stretch? A look at the nearest real-time numbers might help you make a decision, based the location of your purchase, and long-term financial interests. 

Reviewing tax laws/assistance programs for savings

Developing a keen eye for taxation laws across each state will help your move and purchase decision. On the one hand, you may have much larger tax deductibility if you choose to buy. On the other, you could be paying burdensome property taxes that make this deductibility null at best. This case will call you to compare the monthly average differences of buy vs. rent payments. 

Some states are also integrating assistance programs. In Colorado, a temporary assistance program was developed in 2017 to help renters who felt they were being priced out of the Denver area. 

Watch city codes and programs. Location is a heavy driving factor of rent vs. buy decisions in terms of savings options. 

Monetary policy factors 

On February 22nd, 2019 the Federal Reserve Bank released this report on monetary policy in 2019. The Federal Reserve was expected to hike interest rates in the 2019 business year. How did those hikes factor into budgeting for housing consumer, even those who bank privately? It all comes down to the verdict of decisions that the Federal Open Market Committee made for housing. Government housing and Federal housing policies will ultimately impact the housing market supply and demand. 

Energy policy factors on property tax and valuation

One of the central public debates for early 2019 has been green efficiency. Green building and overall eco-friendly economics are taking a strong foothold in all consumer decisions. 

The housing market is perhaps the most directly affected industry for these decisions. Because of this, your decisions to rent vs. buy will be impacted by the changes in policy. You need statistical information regarding these changes state-by-state. Stats on eco-friendliness will help you save the most in not only property tax but also in property maintenance. This can also increase the property valuation if you opt to buy. 

Rent control law factors 

The lines begin to blur a bit more when you meet the rent control issue. Some states are adopting rent control laws. Oregon has recently enacted one as a sort of temporary aid. Oregon is a state that suffers the housing crisis in a more arduous way than other states do. 

A bit of legislative background is necessary to fully grasp this. On February 28, 2019, the Governor of Oregon, Kate Brown, signed a rent control law into effect. The law caps of rent increases on the statewide level. The logic behind this was to give households suffering from inflation issues a lighter financial burden. 

While this is good in theory, the practice will be something different. Many young home buyers may be able to fall back on this sort of safety mesh for a while, but for how long? 

 

Circumstantial Issues of 2019

These sections analyze the aftermath of recent year crises. Some circumstances are natural and some are criminal. All of them impact residential choices. 

Post-disaster factors

The last two years have seen astronomical damages caused by natural disasters. In 2019, this impacts the housing industry. Many structural changes are being done to existing housing options, and more still will need to replace those that had been completely demolished. 

Affordable housing quality alternative comparisons 

The affordable housing debate has been at the center of every discussion. Inflation has ramped up the risk of ventures in the housing industry. Millennials are more cautious about making mortgage decisions than their parents were.

Sitting down to count the cost for cheaper construction that still yields quality is no mean feat.  Yet understanding the process that goes into the making of better affordable housing will drive many of your decisive factors. You want the best ROI for your investment, no matter if you rent or buy. 

Nonprofit initiative factors

As allowed by the legislature, the housing situation will fall into the good graces of non-profit organizations from time to time. This will greatly lessen the liability of housing development in the cases where these ventures were fully capitalized as far of a tax-deductible charity event. Qualifying families will then have a much more desirable bracket of options for low-moderate income. 

Issues unique to Gen-Y and first-time home purchasing

Gen Y is now between the ages of 20 and 37. This influx of new housing consumers will make strong impressions on the way rent vs. buy purchases are decided through 2019. This generation is the most technically advanced society of any in recorded history. Will this impact the decisions they make on rent vs. buy scenarios? How will this generational influence on the market impact your options? 

  • 50% of GenY are renters. This tells us that the rent vs. buy argument in the observable data is cut straight down the middle for this age demographic. That tells us that GenY values rent and buy options at an equal pace. The decisions for their purchase agreement fall then to some preference rather than cost situation. 
  • 60% of Gen Y renters seek apartments, 40% single family homes. Here we see a 20% value difference in the GenY groups that rent in apartments or townhouses, which are typically city-centric structures. The smaller demographic here rents single family or mobile homes. What we can infer from this data is that GenY market entry purchasers are making their decision based on city-dwelling convenience. 
  • Only 26% of GenY own homes. While the numbers of rent vs. buy decision are split in half, the options are not as equally representative. The other 24% of GenY home market prospects either live with family or on student/military housing. Of that 24%, only 3% of the represented live in student or military housing. This means that GenY home market prospects may equally like to buy as they would rent, but those that fall on this side of the decision opt to live with relatives likely for financial convenience. 
  • 27% of represented GenY make above 50k USD income per year. The research on all surveyed GenYers suggests that at least a quarter of the full-time income wage earners are paid above 50K per year. The median rent for apartments today is roughly estimated at $925 a month. The average monthly rent is closer to $1,267 a month. 

 

Before taxes, that is roughly 15k dollars a year. That is 30% of the lowest yearly income for the largest majority of surveyed GenYers. This does not include taxes or cost of living. 

Comparisons between GenY’s average/median rent vs. buy costs

Compare this with the average mortgage cost of $1,578 dollars per month. This is roughly 19k USD per year. Which is 38% of the yearly income for a large majority of GenYers. This means that there is an 8% average decrease before taxes in the yearly cost of rent vs. buying for GenY. 

If you go by the median numbers, $925 dollars a month is an expense of about 11K USD per year. You can subtract this from the average 15k and you will see a 4K USD decrease in the GenY rent liability. The median is only 8% of the yearly income of the large majority GenY worker. 

Compare this with the most recent median mortgage rates. That would be $1,030 dollars according to the most recent American Housing Survey. Do the math and that is a mortgage liability at a median of 12K USD per year before taxes and to the nearest whole number. That is still 24% of the yearly income of the majority GenYer. 

Between the medians, we see a 16% median differences in the housing cost liability for GenYers. 

Changing Family Structures 

The generational influence over the market includes the changing family structure of home consumers. In previous generations, single persons were interested in small apartments. Married couples may live in a cottage. Families with kids enjoyed the suburban double-wide. They rent or they bought based on what was convenient for them all as a family unit. Yet now, with the inflation influence on housing costs, that cell structure of standard households is dissolving. You may have 10 people of varying degrees of family relationship living under one roof for cost convenience. It’s becoming a new normal, compared to the Baby Boomer trends. 

Student Loan and Complex Debt Disruption

The Federal Reserve has conducted research into consumer and community factors for residential consumers as of January 2019. This research exposed a link between Gen Y’s student loan debt and low homeownership. 

Here are the facts: 

  • Homeownership declined by 4% post the financial crisis of 2008. This decrease was from 69% in 2005 to 65% by 2014. 
  • Among young adults, the decrease in change was pronounced. 45% of household heads between the ages of 24-32 owned a home in 2005. In 2014, this figure had dropped to 36%. This is a 9% decrease in under a decade. 
  • Student loan debts have doubled in the US in the last decade observed by this study. In 2005, the average student loan debt was $5,000. By 2014, this number had completely doubled at $10,000. 
  • Frequent surveys compare the financial crisis with the increase in student loan debt. The GenY age demographic cites this as a primary reason they do not own their own home. 
  • Cross-examination finds a correlation between student loan debt increase and a 1-2% decrease in GenY homeownership. 

Because of this broad scope complication, many younger people may opt to rent. There is typically a more lenient credit score approval ranking for a lease. For someone struggling to pay off complex debt, renting is a more desirable option. It carries less commitment and less risky venture. 

That being said, if applicable based on income to loan liability ratio, buying into a home is a way to establish stronger credit. 

Seacoast Is Here to Help

Whether you rent or buy is not your biggest issue in 2019. The biggest issue you have is deciding the financial services you will use to take you straight to your goals. The Seacoast Bank solution brings you a seamless path for mortgage approval. We did the exhaustive recon into all the little things that make up housing consumer intelligence to make your choice painless.

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