Just a thought.

First: Remember that rent rates will inflate over time. In other words, if you assume a 5% inflation average over time, a $2,000 a month rental would cost $2,500+ in five years and $3,260 in just ten years. The argument to rent versus buy starts here. Any assumption based on today’s rent payment versus a mortgage has to account with inflating rent values over time compared to a fixed mortgage payment building equity during the same timeframe.



Second: Tax benefit. The US tax system is unique to all others in that it creates this incredible tax shelter which really becomes a great return on investment. For example, if you buy a $450,000 home today and put 10% down, at today’s rate of approximately 6.5% the buyer would have paid $127,717 in total interest in just the first 5 years. Because of the tax benefit, this owner would have saved $38,315 in federal taxes (assuming a 30% tax bracket) that he/she otherwise would have paid.



Equity: Even if the home does not appreciate, those monthly payments over five years would pay down the mortgage by $25,875 versus a rent payment that does nothing. If the home appreciates at even a meager 2% per year on average, the home would be worth $497,285 in just five years and $549,539 over a decade - again – at just 2% average per year. Equity gets created by both amortization and appreciation.



So look at this payment table below:

Mortgage payment assumes 6.5% fixed rate, average PMI rate, taxes at 1.25%, insurance. I averaged the deduction and amortization by taking the 60 month total and averaging per month.



SFR valued at $450k/$405k loan

(at 90%)
30 year fixed rate plus PMI
Mortgage payment after Tax and amortization monthly
Rent adjusted for 5% inflation on rent rate

Yr 1 Payment
$3,290
$2,083
$2,000

Yr 2 Payment
same
same
$2,100

Yr 2 Payment
same
same
$2,205

Yr 3 Payment
same
same
$2,315

Yr 4 payment
same
same
$2,431

Total
$197,400
$124,980
$132,612




This comparison assumes zero appreciation. None. The story gets far worse for the renter over time as they see their rents rise year after year.



So….why else would someone wait? Oh yeah…this concern about home values. Well, one thing is for certain – perhaps the worst time to buy was the peak of the “seller’s market in 2005 – right before prices stalled. Here we are at the peak of the “buyers” market. Now is the best time to find the perfect home with the motivated seller to get the deal of a lifetime and benefit from all the other variables upfront.



So……I know this is redundant to many and perhaps a bit to complex to explain, but the argument is strong that the qualified potential buyer should act now.