5 reasons to buy instead of rent in 2021
Whether it’s newlyweds trading apartments for their first home or veteran renters taking advantage of historically low interest rates, 2021 offers a home buying climate that may never be seen again.
Even though you likely know the strong arguments in favor of homeownership: investing for the future; building equity; tax benefits; cost stability; and that intangible pride of owning a home that is uniquely yours, it’s normal to have reservations.
For most Americans, purchasing a home is their largest financial transaction, so here is a 2021 look at the five best reasons to buy instead of rent.
1. Pride of Ownership
According to experts at personal finance website TheBalance.com, pride of ownership likely is the number one reason for buying a home. Owning allows more freedom to create living spaces tailored to personal tastes which renting often prohibits. With families spending more time at home, the pandemic created a desire for homes tailored to meet specific needs like a home office or gym. Families see owning a home as an opportunity for long-term stability allowing them to develop roots in a neighborhood and community. While renters can be uprooted by property owners who choose not to renew leases, homeowners have time to get to know their neighbors, develop lifelong friendships, and invest in schools and organizations that make up the fabric of our society.
2. Equity and Appreciation
A home may be a buyer’s largest single purchase, but it’s most often also the wisest investment. While home values may move up and down, over time, homes tend to appreciate in value overall. Investing in stocks and bonds can be complicated, but home investment is easy to understand. Let’s say you have $25,000 to invest. You can buy stocks that hopefully will gain value. Sell that stock in a few years for $27,500 and you’ve gained $2,500 on which you will owe taxes. Invest the same $25,000 as a down payment on a $250,000 home that later sells for $275,000 and you gain $25,000 and will be exempt from taxes.
As a home appreciates in value so does the homeowner’s equity — the difference between the value of the home and the amount owed on a mortgage. Equity can be used to purchase another home, finance home improvements, or as part of a retirement plan. Since homes tend to increase in value over time, many homeowners view equity as a hedge against inflation. That may be especially important in 2021. Kiplinger, a publisher of business forecasts and personal finance advice, predicts inflations will rise by two percent as – hopefully – the pandemic eases.
3. Tax Benefits
Every April 15th, homeowners enjoy tax deductions unavailable to renters. Mortgage interest, property taxes, and insurance amount to substantial deductions for homeowners. Renters paying $1,500 per month to a landlord get no tax benefits. Homeowners paying a $1,500 mortgage each month could save several hundred dollars per month through tax deductions making it actually cheaper to own than to rent.
Since the pandemic began in 2020, more and more workers are creating office spaces in their homes. Tax deductions may be available if you use a portion of your home exclusively for work. Check with your tax professional for advice.
Set to expire at the end of 2021 is a residential energy-efficient property credit for home improvements such as installing solar panels or wind turbines.
4. Price Stability
Especially for families on a budget, the stability of housing cost makes owning more attractive than renting. As demand for housing and market prices rise, landlords can increase rent and eventually make a rental home or apartment unaffordable. With a fixed-rate mortgage, however, homeowners have peace of mind in knowing the largest portion of their housing cost will not change unless they alter the terms of their mortgage.
5. Low Mortgage Rates
The cost of borrowing money to buy a home has never been as low as 2020’s rates. The year ended with a 30-year fixed-rate mortgage interest rate of 2.67 percent. Rates are not expected to significantly rise in 2021, according to the federal mortgage company Freddie Mac. Bankrate.com predicts rates may go slightly lower in early 2021.
“Our founding fathers linked the notion of property ownership to security, a stake in the ground, and general happiness,” says FreddieMac. “The same applies today as homeownership remains the cornerstone of the American Dream – providing families with a sense of emotional and financial stability and, historically, boosting household wealth through equity and appreciation over time.”
Alabama REALTORS® is the largest statewide organization of real estate professionals and the official advocate of Alabama’s multifaceted real estate industry. Subscribe to our newsletter and stay up to date on real estate news in Alabama.