{"id":1742,"date":"2021-05-27T13:07:04","date_gmt":"2021-05-27T13:07:04","guid":{"rendered":"https:\/\/phphouses.com\/blog\/?p=1742"},"modified":"2021-05-27T13:07:04","modified_gmt":"2021-05-27T13:07:04","slug":"misunderstandings-affordability-cost","status":"publish","type":"post","link":"https:\/\/phphouses.com\/blog\/misunderstandings-affordability-cost\/","title":{"rendered":"How Misunderstandings about Affordability Could Cost You"},"content":{"rendered":"
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How Misunderstandings about Affordability Could Cost You<\/p><\/div>\n

There\u2019s a lot of discussion about affordability as home prices continue to appreciate rapidly. Even though the most recent index on affordability from the\u00a0National Association of Realtors<\/em>\u00a0(NAR) shows homes are more affordable today than the\u00a0historical average<\/a>, some still have concerns about whether or not it\u2019s truly affordable to buy a home right now.<\/p>\n

When addressing this topic, there are various measures of affordability to consider. However, very few of the indexes compare the affordability of owning a home to renting one. In a paper just published by the\u00a0Urban Institute,\u00a0<\/em>Homeownership Is Affordable Housing<\/a>, author Mike Loftin examines whether it\u2019s more affordable to buy or rent. Here are some of the highlights included.<\/p>\n

1. Renters pay a higher percentage of their income toward their rental payment than homeowners pay toward their mortgage.<\/strong><\/h4>\n

The report explains:<\/p>\n

\u201cWhen we look at the median housing expense ratio of all households, the typical homeowner household spends 16 percent of its income on housing while the typical renter household spends 26 percent. This is true, you might say, because people who own their own home must make more money than people who rent. But if we control for income, it is still more affordable to own a home than to rent housing, on average.\u201d<\/em><\/p><\/blockquote>\n

Here\u2019s the data from the report shown in a graph:<\/p>\n

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Share of Income Spent on Housing<\/p><\/div>\n

2. Renters don\u2019t have extra money to invest in other assets.<\/strong><\/h4>\n

The report goes on to say:<\/p>\n

\u201cBuying a home is not a decision between investing in real estate versus investing in stocks, as financial advisers often claim. Instead, the home buying investment simply converts some portion of an existing expense (renting) into an investment in real estate.\u201d<\/em><\/p><\/blockquote>\n

It explains that you still have a housing expense (rent payments) even if you don\u2019t buy a home. You can\u2019t live in your 401K, but you can transfer housing expenses to your real estate investment. A mortgage payment is\u00a0forced savings<\/em>; it goes toward building equity you will likely get back when you sell your home. There\u2019s no return on your rent payments.<\/p>\n

3. Your mortgage payment remains relatively the same over time. Your rent keeps going up.<\/strong><\/h4>\n

The report also notes:<\/p>\n

\u201cWhereas renters are continuously vulnerable to cost increases, rising home prices do not affect homeowners. Nobody rebuys the same home every year. For the homeowner with a fixed-rate mortgage, monthly payments increase only if property taxes and property insurance costs increase. The principal and interest portion of the payment, the largest portion, is fixed. Meanwhile, the renter\u2019s entire payment is subject to inflation.<\/em><\/p>\n

Consequently, over time, the homeowner\u2019s and renter\u2019s differing trajectories produce starkly different economic outcomes. Homeownership\u2019s major affordability benefit is that it stabilizes what is likely the homeowner\u2019s biggest monthly expense, assuming a buyer has a fixed-rate mortgage, which most American homeowners do. The only portion of the homeowner\u2019s housing expenses that can increase is taxes and insurance. The principal and interest portion stays the same for 30 years.\u201d<\/em><\/p><\/blockquote>\n

A mortgage payment remains about the same over the 30 years of the mortgage. Here\u2019s what rents have done over the last 30 years:<\/p>\n

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Median Asking Rent 1990-2020<\/p><\/div>\n

4. If you want to own a home and can afford it, waiting could cost you.<\/strong><\/h4>\n

As the report also indicates:<\/p>\n

\u201cWe need to stop seeing housing as a reward for financial success and instead see it as a critical tool that can facilitate financial success. Affordable homeownership is not the capstone of economic well-being; it is the cornerstone.\u201d<\/em><\/p><\/blockquote>\n

Homeownership is the first rung on the ladder of financial success for most households, as their\u00a0home<\/a>\u00a0is most often their largest asset.<\/p>\n

Bottom Line<\/strong><\/h3>\n

If the current headlines reporting a supposed drop-off in home affordability are making you nervous, let\u2019s connect to go over the real insights into our area.<\/p>\n

Contact us:<\/strong>
\nPHP Houses
\n142 W Lakeview Ave
\nUnit 1030
\nLake Mary, FL 32746
\nPh:\u00a0(407) 519-0719<\/span>
\nFax:\u00a0(407) 205-1951<\/span>
\nemail:\u00a0info@phphouses.com<\/p>\n

Let\u2019s Connect:<\/strong>
\nFacebook<\/a>
\nLinkedin<\/a>
\nTwitter<\/a>
\nInstagram<\/a><\/p>\n

THE INFORMATION PRESENTED IN THIS ARTICLE IS FOR EDUCATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSIDERED LEGAL, FINANCIAL, OR AS ANY OTHER TYPE<\/em><\/h6>\n","protected":false},"excerpt":{"rendered":"

When addressing this topic, there are various measures of affordability to consider. However, very few of the indexes compare the affordability of owning a home to renting one. Finish Reading How Misunderstandings about Affordability Could Cost You<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[36],"tags":[196,38,227,240,15,18,27,52,49,63,20,12,48,239,28,47,19,6,17],"_links":{"self":[{"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/posts\/1742"}],"collection":[{"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/comments?post=1742"}],"version-history":[{"count":1,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/posts\/1742\/revisions"}],"predecessor-version":[{"id":1746,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/posts\/1742\/revisions\/1746"}],"wp:attachment":[{"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/media?parent=1742"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/categories?post=1742"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/phphouses.com\/blog\/wp-json\/wp\/v2\/tags?post=1742"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}