Should You Buy or Rent a Home in 2024? | The Answer Just Flipped!

Summary

In a recent video by Joseph Hogue, CFA, the discussion focuses on the monetarily challenging decision of whether to buy or rent a home in 2024. Traditionally, buying has been seen as a forced savings plan with potential for value appreciation; however, market shifts have flipped this conventional wisdom. High home prices and increased mortgage rates make buying currently less appealing than renting. Yet, renting isn't risk-free either, given the potential for unpredictable rent increases. Hogue provides two key rules to help viewers decide what's best for them: the "BURL" rule which advises buying necessities and renting luxuries, and an honest self-assessment of personal saving habits.

Highlights

• Market conditions have drastically altered the buy vs rent calculus, with current trends favoring renting due to high home prices and mortgage rates 📈.
• The BURL rule stands for 'Buy Utility, Rent Luxury,' encouraging smart financial decisions based on necessity over luxury 🏠.
• The video emphasizes assessing personal savings habits to determine the best financial decision 📊.
• Average mortgage payments have increased substantially, making them 1.5 times more costly than renting 🌟.
• A potential real estate market correction could be looming, with increased contract cancellations noted 📉.
• Investing in stocks might be a smarter financial decision than home ownership given the potential for higher returns 💰.

Key Takeaways

• Buying a home has historically been a 'forced savings plan', yet market shifts are challenging this idea in 2024 🎢.
• Current economic conditions, including high mortgage rates and elevated home prices, make renting more cost-effective 🔄.
• The BURL rule suggests buying what you need and renting what is considered a luxury 💡.
• Honest evaluation of personal financial habits is crucial in deciding whether to buy or rent 📝.
• In some cases, investing money in stocks instead of buying a home might yield better returns 📈.
• A significant change in the housing market could indicate an impending real estate correction 🚨.

Overview

In this video, Joseph Hogue brings to light new developments in the housing market that influence the age-old debate of whether to buy or rent a home. Historically, buying was encouraged not just for potential returns, but as a means of enforced savings. However, recent economic changes challenge this norm, making renting look attractive as exorbitant home prices and mortgage rates rise.

The discussion illustrates notable financial principles like the 'BURL' rule, which stands for 'Buy Utility, Rent Luxury'. This advice helps individuals decide based on necessity versus additional luxurious desires. Hogue encourages viewers to understand when a potential home purchase is just clocking extras they don't need. More importantly, an individual's financial discipline plays a crucial role in this decision-making process.

Overall, the video points to indicators such as increased mortgage rates and stagnant rental rates relative to housing prices, suggesting a significant shift in the market. Hogue suggests that, in some cases, it may be more financially prudent to rent and invest potential home-buying funds in the stock market instead, owing to the potentially higher dividends and returns.

Chapters

• 00:00 - 01:00: Introduction and Overview The chapter introduces the financial considerations involved in deciding whether to buy or rent a home. It highlights the significant costs associated with renting over a lifetime, especially in expensive states like California and New York, where lifetime renting can exceed $2 million. Meanwhile, buying an average home, priced at $440,000, involves long-term financial commitments due to interest and taxes, potentially amounting to over $1.2 million. The decision to buy or rent is portrayed as a crucial financial decision, one recently faced by the author’s family upon relocating to Tampa, suggesting a personal and practical angle to the discussion. Despite previous assertions that buying doesn't always make financial sense, the author implies it might still be the right choice, setting a premise for further exploration in subsequent sections.
• 01:00 - 02:00: Financial Comparison: Buying vs Renting The chapter discusses the traditional view that buying a home acts as a forced savings plan beneficial for retirement. However, it highlights a significant change in the current housing market, unprecedented even during the housing bubble, which affects the decision of buying versus renting. The chapter aims to explore how this shift alters the benefits of buying compared to renting, detailing the pros and cons of each option, and provides guidance on determining which choice may be more suitable for individuals.
• 02:00 - 03:00: Pros and Cons: Buying a Home The chapter discusses the pros and cons of buying a home. It highlights the financial benefits like a 5% return from not paying rent and price appreciation averaging just under 4%. However, it also mentions additional costs such as property taxes and maintenance.
• 03:00 - 04:00: Pros and Cons: Renting a Home The chapter "Pros and Cons: Renting a Home" discusses the financial implications of renting versus buying a home. It presents a comparison between the return on investment for home ownership, which is approximately 5.25% per year, and the returns from stock investments (8% annually) and tech stocks (12%). The surface conclusion suggests that renting is financially smarter if one invests the saved money into the stock market. However, the chapter argues against this notion by highlighting the practical challenges of personal savings, asserting that buying a home can be a wise financial decision for many due to people's difficulty in saving money effectively.
• 04:00 - 05:00: Current Market Dynamics The chapter titled 'Current Market Dynamics' discusses the changes in the housing market, specifically how buying a home acts as a forced savings plan through the accumulation of equity with each mortgage payment. However, it highlights that the market dynamics have shifted significantly this year. The chapter aims to explore the reasons and pros and cons of buying versus renting a home, helping readers determine which option may be more suitable for them under the current market conditions.
• 05:00 - 06:00: Impact of Market Changes This chapter discusses the advantages and disadvantages of owning versus renting a home. It highlights the benefits of homeownership, such as investment potential, pride of ownership, stability, tax deductions, and increased happiness according to some studies. However, it also notes the downside of market dependency when needing to sell quickly. In contrast, renting offers mobility and predictable monthly expenses.
• 06:00 - 07:00: How to Decide: Buy or Rent This chapter discusses the decision-making process of whether to buy or rent a home. It highlights the financial considerations involved, such as the significant initial down payment required for buying a home versus investing that money elsewhere. The example given is investing thirty thousand dollars in stocks at an 8% return, which could grow significantly over time compared to the potential financial loss when opting to buy a home. It also covers the disadvantages of renting, notably the lack of control over rent increases and other landlord-imposed changes, as many states lack laws limiting these practices.
• 07:00 - 08:00: Case Study: Tampa Housing Decision This chapter discusses the financial decision-making process concerning housing—whether to sell or rent out a house, with a unique angle of using dividend stocks to potentially cover rental expenses. It highlights a proven strategy involving locking in gains through selling property and suggests investing in monthly dividend stocks to generate regular income, effectively covering rent. The chapter cites a significant shift in the housing market noted by the Wall Street Journal, marking the first occurrence in over 40 years, emphasizing that traditional pros and cons of buying versus renting are now impacted by this unprecedented change.
• 08:00 - 09:00: Conclusion and Final Advice In the chapter titled 'Conclusion and Final Advice,' the discussion centers around the current housing market situation. It highlights the alarming rate of home buyers backing out of their purchases, specifically noting that one in five buyers withdrew from their contracts in July. This trend is presented as a potential indicator of an impending real estate market crash. The chapter further elaborates on the drastic increase in mortgage interest rates, which have doubled to over six percent, alongside a significant rise in home prices by 40% since 2019. Consequently, the median home price in the U.S. has escalated from $300,000 to $440,000, illustrating a notable market shift.

Should You Buy or Rent a Home in 2024? | The Answer Just Flipped! Transcription

• 00:00 - 00:30 the average cost to rent over a lifetime is well over a million dollars and you'll pay over 2 million to rent in California or New York buying the average home at 440 000 will take you decades and cost over 1.2 million dollars with interest in taxes buying versus renting your home is the most important financial decision you will ever make it's a decision my family recently had to make on our move to Tampa and it's one you'll have to make at least once in your lifetime now I've said before that buying makes no sense by the numbers but it's still the right
• 00:30 - 01:00 thing to do financially for most people buying a home is like a forced savings plan that can help you save hundreds of thousands of dollars for retirement or at least that used to be the thinking right now something is happening in the housing market that has never happened before something we didn't even see in the housing bubble and it's totally changing the answer to buy versus rent the housing market just flipped the script I'm going to show you how that answer has changed the pros and cons of both buying and renting two ways to know which is right for you and how we
• 01:00 - 01:30 answered that question just last month we're getting started but before we do you know I've got to send that special shout out to all you out there in the nation thank you for spending a part of your day to be here if you're not part of that Community yet just click that little red subscribe button it's free and you'll never miss an episode Nation the nerd in me always wants to answer these kinds of questions with the numbers but sometimes it's not that easy buying a home is worth about a five percent return from not having to pay rent you also get that price appreciation which has averaged just under four percent but then you have to pay property taxes and maintenance when
• 01:30 - 02:00 all is said and done the return on home ownership works out to be around 5.25 a year compare that with the eight percent annual return you get from investing your money in stocks or the 12 return in tech stocks and the answer should be obvious just rent your home and put that down payment into the market instead but while buying a home instead of renting looks dumb on the numbers it's actually one of the smartest financial decisions most people can make that's because people are horrible at saving money yeah I said it let's be honest there folks given the choice between say even for
• 02:00 - 02:30 retirement or buying that mocha coca cappuccino most people would wash it down with a dozen donuts as well but now when you buy a home you've got that monthly mortgage payment that's like a forced savings plan with every payment you're adding a little more Equity that you can someday cash out well that's what I used to think but this year everything changed the housing market has been turned upside down now let's back up a little bit because I want you to understand the pros and cons of buying versus renting reasons why one might make more sense for you oh with buying you do get that forced savings
• 02:30 - 03:00 plan a built-in investment even the worst shopaholics can count on for retirement you also get that pride of ownership and the stability that comes with it with some studies showing homeowners are actually happier than renters you also get deductions on your income taxes for interest and property taxes and and now if I miss any of the pros and cons on either of these let me know in the comments of course the downside to buying a home is you're kind of at the mercy of the market if you need to sell fast with renting a home though you can pack up and move if you don't like the neighbors you've also got a predictable monthly expense when the
• 03:00 - 03:30 air conditioner breaks and it feels like you're cooking people burgers in the middle of June in Phoenix you just call the landlord instead of draining your bank account investing that thirty thousand dollar down payment in stocks at an eight percent annual return grows to more than three hundred thousand dollars over 30 years buy a home though and you're going to lose nearly two hundred thousand dollars in difference on your returns now the downside of renting is you're always going to be at the mercy of your landlord Most states have no laws limiting how much rents can be raised or landlords can always decide
• 03:30 - 04:00 to sell the house now if you do decide to rent how would it feel to have your dividend stocks pay for your rent okay dumb question I know it would be freaking awesome so check out the video linked below for seven monthly dividend stocks that will do just that seven stocks for monthly cash flow to pay your rent now this is normally where the video would just end I give you the pros and cons of buy-in versus renting and send you on your Merry way to decide what's best for you but this year the game has changed according to the Wall Street Journal the housing market is seeing something that hasn't happened in more than than 40 years not even then
• 04:00 - 04:30 the housing bubble was it this bad and it's causing one in five home buyers to back out of their contracts in July alone people that already signed to buy a home saying nope this changes the decision it could also be one of the first signs of another crash in real estate the interest rate on the 30-year mortgage has doubled to over six percent this year and home prices have jumped 40 percent since the start of 2019. that means the median home price in the United States is now four hundred and forty thousand dollars up from just three hundred thousand just a few years
• 04:30 - 05:00 ago and normally you would expect asking rents to keep up with those home prices the home is an investment so if the value goes up then how much the investor makes on a rent should go up as well right but now that hasn't happened while asking rents are heading higher they haven't kept up with those home prices you see because the eviction moratorium during the pandemic many landlords didn't raise their rents why increase the rent if you can't evict somebody for not paying landlords just wanted to get something instead of nothing in the fourth quarter of 2020 the average mortgage rent and the s asking rent or
• 05:00 - 05:30 about the same at twelve hundred dollars a month since then rents are up just ten percent nationally to thirteen hundred and fourteen dollars in June according to the Census Bureau while mortgage payments are up 58 to 1893 dollars that has made the mortgage to rent trade-off Spike to 1.5 times buying a home is now one and a half times more expensive than renting something that hasn't happened in decades even during the housing bubble now home price growth has slowed since June and home sales have been falling for months home buyers are
• 05:30 - 06:00 actually backing out of contracts that could be the sign of the next crash in real estate and I know what you're saying all these numbers they work out in a general sense whether it's better to buy or rent a home for most but how do you tell when you should be buying versus renting what is right for you so here I want to give you two ways to know exactly when you should buy and when you should keep renting first is what I call the Burl rule a burl it stands for buy utility rent luxury and the borough rule is a great Common Sense idea that says if it's something you absolutely need
• 06:00 - 06:30 then you own it it's a utility purchase the minimum you need to get by luxury though that's something beyond what you need it's that exercise room that you're never going to use or the swimming pool that's going to cost a grand in maintenance every year if the home you're going to be buying includes a lot of these luxuries that you don't need you should rent instead for example here in Tampa if we were to buy a four bedroom house around 1600 square feet no pools fancy bells or whistles pretty much the minimum we need for three bedrooms and my office we could get something like that for just under three
• 06:30 - 07:00 hundred thousand dollars or a hundred and seventy dollars per square foot but before moving we knew we wanted to live in a community with lots of amenities we ended up in Corey Lake Isle and well for a kid born on the wrong side of the tracks this place is amazing we've got a community pool with a slide four Parks a lake with a beach and Lakefront right outside the house oh it's fun and there's always something to do but it's definitely a luxury the average price of homes in the area right now is six hundred and ninety three thousand dollars way over that base utility house
• 07:00 - 07:30 that we would buy in fact even been on a 20 down payment a 30-year mortgage would cost us forty seven hundred and fifty dollars a month way more than this cheap ass is willing to pay so instead of buying the luxury we're gonna rent because of that Borough rule that for twenty four hundred dollars a month we get all the benefits of the community and save thousands of dollars and the second way to know whether buying versus renting is best for you is going to take some brutal honesty on your part so remember when I said buying is the smarter Choice even if the numbers don't quite make sense that most renters will
• 07:30 - 08:00 end up spending that extra money each month instead of saving and investing it well are you most people and now hey before you answer I know we're all special unique little snowflakes that that nobody thinks of themselves as given to these human mistakes but most of us are think back to those times when you have that extra money in your budget how much of it did you save and how much went to buying that treadmill that is now a twelve hundred dollar coat rack are you someone that saves money regularly and then doesn't blow it every year do you have an investment account that you deposit into each and every
• 08:00 - 08:30 month if not you might just be better on that forced Savings Plan called a home mortgage click on the video to the right for the seven monthly dividend stocks that will pay your rent seven stocks that are going to put cash in your pocket every month whether you're buying or renting don't forget to join the let's talk money Community by tapping that subscribe button and clicking the Bell notification