Is buying a house still worth it?
Home prices continue to climb. And interest rates have gone up as well, increasing the cost of homeownership from month to month. Unsurprisingly, many home buyers are left wondering: Is buying a house still worth it in 2022?
The short answer is yes. If you’re financially ready, buying a house is still worth it — even in the current market. Experts largely agree that buying and owning a home remains a smarter financial move than renting for many.
If you’re on the fence about a home purchase in 2022, here’s what you should consider.
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Benefits of buying a house in 2022
Despite the financial challenges of the current market, there are plenty of reasons why buying a home is still worth it in 2022.
1. Rising prices lead to increased equity
One of the chief benefits of owning a home is that over time, increased home equity can add to your net worth and give you a low-cost source of cash as needed. The ability to build equity is what sets homeownership apart from renting, which has no return on investment.
“Home buyers who purchase a home today are still likely to see rising property values and increased home equity. That’s because supply is still relatively low compared to buyer demand, so home prices are likely to keep rising, although at a slower pace,” notes National Association of Realtors (NAR) senior economist Gay Cororaton.
“When you couple [fixed mortgage payments] with the fact that rents are increasing at record levels, it makes more financial sense to own a home and gain the equity”
–Jason Gelios, Realtor
Cororaton points out that, even with rising mortgage rates, home prices have held up. As of March 2022, the median sales price was up 15% year-over-year.
“Although home prices have fallen approximately 30% from their peak level in 2006, they have rebounded over the years, with the median single-family existing-home sales price rising at an annual pace of 3.4% from the fourth quarter of 2006 through the fourth quarter of 2021,” Cororaton adds.
Using this metric, if you bought a home 15 years ago, you likely would have accumulated $197,500 in home equity — $141,700 of which would be price appreciation.
“Over the past 30 years, a homeowner who purchased a typical home and sold it today would likely have built up equity of $360,700,” she continues.
2. Homeownership means fixed housing costs
What’s extra nice about buying a home with a fixed-rate mortgage is that “even though the value of your home will increase, your monthly principal and interest payment will remain the same over the life of your loan,” says Jordan Fulmer, owner of Momentum Property Solutions in Huntsville, Alabama.
Jason Gelios, a Michigan-based Realtor, points out that that owning real estate is still the top way to create generational wealth. “When you also couple this reasoning with the fact that rents are increasing at record levels, it makes more financial sense to own a home and gain the equity.”
“There aren’t too many investments that can provide the returns that real estate can,” he says.
3. Owning gives you opportunities renting doesn’t
Of course, there are several other advantages to buying a home today. These include:
- The ability to customize your home the way you see fit, unlike a rental unit that likely won’t allow for personalization
- Greater privacy from neighbors, especially if you select a single-family detached home
- Home equity that can be tapped via a home equity loan or home equity line of credit (HELOC). This money can be used to fund home improvement projects, pay off debt, cover the cost of a wedding or other major expense, or virtually anything you desire
- The ability to claim a mortgage interest deduction on your taxes if you finance your property
- The chance to build a stronger credit rating and improve your credit score if you finance a mortgage and pay your bills on time
And then there are other, less tangible benefits many homeowners experience. For instance, you’ll likely have more room to raise a family and grow your household. And you may build roots in your community and enjoy greater stability over time. Consider that renters are four times more inclined to relocate in a given year versus homeowners, per the U.S. Census.
Disadvantages of buying a home in 2022
Of course, buying a house isn’t going to be the right move for everyone. There will be certain downsides to homeownership in any market — particularly the current one. Here’s what experts say prospective buyers should watch out for.
“One of the biggest disadvantages is the fierce competition buyers face nowadays. It’s really a dog-eat-dog market for buyers, making it more stressful to win a bid on a home,” says Gelios. “Purchasers will need to move quickly and be aware of what they are looking for in a home.”
Additionally, it’s getting more expensive to win bidding wars, leaving many would-be homeowners owners out in the cold. You don’t want to jeopardize yourself by borrowing more money and/or paying a higher interest rate than you can afford.
Furthermore, there is no guarantee that your home will continue to increase in value at the rate residences have over recent years. The NAR anticipates home price appreciation to slow to 5% by the end of the year — a rate of appreciation in line with historical norms.
But, while property values won’t continue to skyrocket as we saw in 2020 and 2021, they should keep growing over time. And even at a slow rate of appreciation, this leads to significant equity growth, making homeownership one of the best investments available.
Is it smart to buy a home with home prices so inflated?
Naturally, some home shoppers worry that buying a home is a waste of money because home prices are inflated — and if they drop, it could mean a net financial loss for those who buy at the peak of the market.
However, The experts we’ve interviewed throughout 2022 agree that a housing crash is highly unlikely.
“I don’t believe there will be a nationwide crash. For a crash to occur, the supply and demand situation would have to flip upside down, with more inventory existing than the number of buyers,” Fulmer explains.
“However,” he continues, “I believe that many markets around the country have seen artificial inflation over the last couple of years. These markets will likely see significant corrections due to rising interest rates and other economic factors.”
“If you are purchasing in an area with consistent growth and a robust economy, you likely have nothing to worry about when paying above the asking price on a house… In these markets, the value will likely continue to rise above what you paid for the house.”
–Jordan Fulmer, Owner of Momentum Property Solutions
Gelios agrees that we are not in a market bubble. “Unlike what we saw back in 2008, there are no current indicators of a housing market crash occurring. For example, we continue to have competitive homebuyers who are willing to pay cash above the asking price and a healthy job market with many positions being unfilled — two signs that we are in no way headed toward a crash.”
He adds, “Even with inflation increasing the prices of everything from groceries to automobiles, we won’t see the housing market go down anytime soon. The demand for homes will remain with us for a long time, especially as first-time buyers reenter the market this year to get their shot at owning a home.”
Keep in mind that most people shopping for homes today are millennials who have postponed buying a house and are eager to become first-time homeowners. As Gen Y continues to feel pressure to accommodate their partners and children, they will join in hunting for and buying homes. That means pricing pressures aren’t going anywhere.
“If you are purchasing in an area with consistent growth and a robust economy, you likely have nothing to worry about when paying above the asking price on a house — assuming you can afford the monthly payment,” adds Fulmer. “In these markets, the value will likely continue to rise above what you paid for the house.”
Buying versus renting in 2022
While home prices have increased rapidly over the past two years, renting isn’t always a more affordable alternative. Rent prices have been skyrocketing in many places, too.
“We are seeing rental increases of $300 extra per month in my market. That impacts how much you can spend on your basic life necessities like groceries, gas, and utilities,” says Christian Ross, managing broker at Engel and Volkers in Atlanta. “There is also a persisting shortage of rental supply in many markets, meaning you may have an easier time finding a home for sale than a rental.”
Housing payments vs. rent payments
“I would focus more on your monthly payments than the likely prospect of home appreciation and increased equity,” he continues. “If your mortgage payment will be less than you would pay in rent for a similar house, you should probably go ahead and purchase a home.”
Suzanne Hollander, a real estate law professor at Florida International University in Miami, says it’s crucial to perform your due diligence here.
“To know if it’s more expensive to buy or rent in your market, you need to do your homework and calculate the math. Learn the sale prices of comparable properties in your area and the rental prices for leased properties. Calculate the amount of your monthly mortgage payments based on your research of the likely sale price compared against the amount of your expected monthly rental payment,” she recommends.
To estimate your future monthly mortgage payment, see: Mortgage payment calculator with PMI, taxes, and insurance
Mortgages are fixed, rents are not
Keep in mind that if you choose a fixed-rate mortgage loan to finance a property, your monthly principal and interest payments will stay the same throughout your loan’s term. (Though keep in mind that property taxes and homeowners insurance rates can increase over time.)
“In contrast, rental rates are not predictable,” says Hollander. “Normally, a tenant signs a one-year rental contract. And at the expiration of the contract, the rental rate will probably increase. Only five states and the District of Columbia have rent control laws in place.”
If you expect a job relocation or a move in the next few years, it may be more advantageous to rent than purchase, however. That’s partially because you’ll incur closing costs on a home purchase, which may equal 2% to 5% of your borrowed amount. It will probably take a few years to recoup those costs, which requires staying put.
Your next steps
Still undecided about buying versus renting?
“Consult with an experienced Realtor and mortgage lender, who can help you explore what options are available at your budget and shine a light on your financial situation,” advises Ross.
Also, carefully research the state of your local market.
“If there is an influx of jobs, there will probably continue to be more buyers and sellers, resulting in continued growth in home prices,” says Fulmer. “In a less robust market, it might be smarter to continue renting in anticipation of a possible market correction and lower home prices.”
The bottom line? Provided your finances are in order, your job is secure, you can afford the monthly payments, you’re working with a skilled real estate agent, and you will remain in place for at least a few years, buying a home will not be a waste of money in 2022, the pros agree.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.