The sales market is competitive, which is driving our rental market up as well. People who want to purchase are being forced into a rental because of how competitive it is. Either the prices have gone up so much they are hesitant to jump in, or they are on their 10th offer with no end in sight. Buyer burnout is real. Not to mention people who are having to pay the high price of a month to month situation waiting on their new construction to close.
Average Sales vs. Average Rent
If you are looking to do an annual lease. A 3 bed 2 ba is going to cost you more than $2,000/month. The lowest I saw for rent was a condo at $1,600 and the highest was well above $3,000. This may or may not include your monthly utilities. Don’t forget you will also have to pay first, last and a security deposit to move in. So if you are looking at $2,500/mo in rent; expect around $7,500 out of pocket.
Now maybe you want to do a month-to-month. Right now because of how crazy our market is, the price on these has gone up as well. If you find a steal you are paying $3,000/month easily, though I see prices in the $3,500-$6,000/month range.
Average Sale price is $380,000 & Rising. Assume you put 20% down, your monthly payment would be $1,833 (Principal,Interest,Taxes,Insurance). 20% down is $76,000 and you will also have your closing costs which will be around $13,300. Your total out of pocket will be around $90,000.
If you do 5% down that will be $19,000, plus closing costs you are going to be at $33,000.00 and your monthly payment would be around $2,100.00.
Forecast for the Future
The most conservative expectation for appreciation that I have seen for next year is 14%. That would mean our average sale price would go up to $433,000; that’s 50k in one year.
Interest rates are on the rise: experts are expecting interest rates to rise by the end of the year. As of now rates are right at 2.87%; that could potentially climb to 3.5% by end of year.
All of this could happen barring a hurricane or war or invasion by aliens; and it is what experts are predicting.
Should you rent or should you buy?
If I rent what happens in a year? Worst case scenario interest rates and prices continue to climb. If the sales price is 433k and the interest rate goes up to 3.5% how does that change my out of pocket expenses? The 5% down payment would go up to $21,500 ($2,500) change, not a huge deal. Your monthly payment would go up to $2,322 ($200). Though you also lost out on the 50k of equity that you would have gained if you purchased last year.
How do you get a deal in this market?
This is my opinion. I believe doing new construction is the best deal on the market. Our resale market and new construction market are neck and neck in terms of pricing. If you have the time to wait, this is going to be the best option. You get a brand new home with warranties and a lot of the time there are builder incentives to purchase. Some builders will buy down your interest rates, others will pay closings costs, some will do both. The only hang up is that you are at the mercy of co-vid supply chains and the timeline of the builder.