September 28, 2022

The Rent Vs. Buy Decision In 2022's Interest Rate Environment (And Lofty Market)

1 hour 10 minutes

When I did a rent (and invest) vs. buy analysis back in January 2021 with a 2.6% interest rate, the results were pretty neck-and-neck. As rates climbed this year, I figured it would be fun (I’m using the word “fun” loosely) to revisit the exact same scenario with the higher rate.

Depressingly, when we recorded this episode just last week, the rate was 5.95%. In the course of a single week, it’s now surpassed 7% as of publish (9/27/2022). How have the rates changed the math now and how does one realistically budget for a median home in the US today with 6+% 30-year fixed rates? Let’s find out.

I'm also joined by Andy Taylor, VP & GM of Credit Karma Home (https://www.creditkarma.com/) to discuss breakeven costs, refinancing, and borrowing against home equity.

Episode transcriptions can be found at https://www.podpage.com/money-with-katie-show/.

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Mentioned in the Episode

Summer 2022 interest rates: https://www.forbes.com/advisor/mortgages/mortgage-rates-08-31-22/

Early 2021 rent vs. buy analysis: https://moneywithkatie.com/blog/when-the-math-supports-buying-your-primary-residence-instead-of-renting

"Average net worth of homeowners," from CNBC: https://www.cnbc.com/select/average-net-worth-homeowners-renters

Quit Like a Millionaire by Kristy Shen: https://www.penguinrandomhouse.com/books/592323/quit-like-a-millionaire-by-kristy-shen-and-bryce-leung-foreword-by-jl-collins/

Data on home ownership averages: https://www.ngpf.org/blog/economics/qod-how-many-years-has-the-typical-american-homeowner-been-in-their-current-home/

Average median home value, from The Motley Fool: https://www.fool.com/the-ascent/research/average-house-price-state

Private mortgage insurance: https://www.investopedia.com/mortgage/insurance/

Average homeowners insurance: https://www.investopedia.com/insurance/homeowners-insurance-guide/

Average property tax rate: https://smartasset.com/taxes/texas-property-tax-calculator#UMznyF9L22

Average mortgage rate for 30-year term: https://www.bankrate.com/mortgages/todays-rates/mortgage-rates-for-monday-july-25-2022/

Amortization calculator: https://www.bankrate.com/mortgages/amortization-calculator/

Paying interest first in mortgage payments: https://www.investopedia.com/ask/answer/07/mortgagepayments.asp

Average broker's commission: https://www.ownerly.com/real-estate/average-commission-for-real-estate-agent/

Average closing costs: https://themortgagereports.com/35800/guide-to-mortgage-closing-costs-what-average-mortgage-costs-are-and-how-to-keep-yours-low

Average 3% rental increases: https://www.apartmenttherapy.com/average-rent-increase-percentage-268659

IRS Standard Deduction: https://brighttax.com/blog/irs-standard-deduction-expats

Rule of 150: https://www.businessinsider.com/renting-versus-buying-a-house-advice-math-rule-2019-9

28/36 Rule: https://www.investopedia.com/terms/t/twenty-eight-thirty-six-rule.asp

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