One of the most talked-about subjects right now is the real estate market. The American real estate market is hitting record numbers, with the median home sale price in the US at $363,000 in June 2021, a 23% increase from the year prior. Now, many families find themselves asking, “which is better for us right at the current moment, renting vs. owning?”
For family financial planning strategies, the hot real estate market plays a critical role in decision making, especially for young families looking to expand their living space.
For my family, when we upgraded from our tiny two-bedroom in Beacon Hill to our current house, we felt like we had so much space. We knew that with the two (now three) boys, we would need a bigger yard in 3-5 years. We have seen prices around us skyrocket and are now experiencing serious FOMO (fear of missing out). Did we miss the boat?
The current economy has created a “hot” market, also known as a seller’s market. A “hot” market occurs when there are fewer houses on the market available for buyers. The low inventory and high demand for houses mean that costs skyrocket, and buyers are likely to pay more than the listing price. This is what we are experiencing in the market now, and this current trend has made it increasingly difficult for middle-class people, especially millennials, to purchase a property.
The majority of people try not to consider the state of the housing market before deciding on whether or not to purchase a home. This is a rather regrettable oversight, considering that, as with any investment, there are good times and bad times to buy a house. Although many people view a house as just a place to live and create a home rather than an investment, it is exactly that: an investment.
Owning in Boston
In Boston, one reason the city’s market has been so stable is the constant inflow of new buyers.
Each spring, the new graduate students rent a studio and one-bedroom apartment, and after three years, they buy a similarly sized condo. Then five years later, they upgrade to a two-bedroom while preparing for their first child. Five years later, they outgrow the two-bedroom condo, buy a $1.5M three-bedroom condo, or move out of the city.
According to forecasting data from LittleBigHomes.com, within the last five years, the Boston real estate market has increased 33% in average home value, and it’s up 153% over the last 20 years.
The city is the perfect example of a healthy and continuously cycling hot market. The people who first move into the city for college find it attractive and decide to find work and raise a family within the Greater Boston Area if possible. As the market pricing of homes within the city keeps increasing, it could force people out earlier than they would prefer and eventually flatten the price increases.
For homeowners and sellers, it’s a great time to have residential property in Boston; for first-time homebuyers and millennials looking to accrue equity, it’s a very difficult time to purchase.
Renting vs. Owning: Is There a Solution?
If waiting for the market to change in favor of buyers (known as a “cold” market) isn’t a feasible option, renting may be the best solution. Just as with any other investment that can be volatile, you should have at least a 3-5 year timeline for buying so you can protect yourself from quick price changes, perhaps even longer when the market is so hot as it is today.
Key Benefits of Renting
- No maintenance cost or repair bills
- Access to amenities
- No real estate taxes
- No down payment
- More flexibility as to where you can live
- Few concerns about decreasing property value
- Fixed rent amount
- Lower insurance costs
- Lower utility costs
Key Benefits of Buying a House
- Creates long term wealth accumulation
- There are tax advantages
- Rental investment income possibility
- Current interest rates are low
- In some cases, it may be cheaper to buy than pay high monthly rental rates
- Potential to see a greater return on investment
- Real estate as an asset has performed better than most any other asset classes
While there are advantages (and disadvantages) of both purchasing and renting real estate, there is not a clear-cut answer to which is the wiser option; it’s all going to vary from person to person, family to family. Each potential buyer or renter needs to assess their situation and figure out which option best fits their needs and lifestyle.
Family Financial Planner
No matter which option you may be leaning towards, hiring a family financial planner is something you should consider.
A family financial planner can help guide those wanting to purchase a home in a hot market to be financially able to do so. Purchasing a house requires a significant amount of saving, and renters would be smart to save up too. A financial planner can help you meet that savings goal and potentially even exceed it.
Homeownership Is not how much money you make; it’s about how well you manage your financial decisions to meet your goals.
As a fee-only financial planner in Boston, MA, I’m happy to connect with you and answer any questions you have regarding financial planning or the Boston real estate market!
Please read the accompanying articles on middle-class income:
What Does It Mean to Be “Middle Class”?: An Introduction to the American Middle Class
Middle-Class Income: Is Inflation Squeezing the Middle Class?
