The question as to whether millennials should rent or buy a property right now is one that is constantly being debated but just recently Trulia, one of the major real estate ad companies has been trying to persuade this particular group that it’s time to get on the property ladder.
Trulia has analyzed raw data showing it’s 23% cheaper for a millennial age between 25 and 34 to buy a property rather than rent, based on an assumption that they can only afford a 10% down payment and are likely to move every five years or so. If you look at things objectively this might seem to be the right view as interest rates are still at near historic lows while rents are becoming increasingly expensive in many urban areas.
Trulia’s argument is that a 30 year fixed mortgage rate would have to be at least 5% for renting to be cheaper than buying in Los Angeles and would need to be 5.1% in New York City. At the moment the rate charged on a 30 year mortgage is still only an average of 3.98%, even though there is anticipation that rates will increase in the future when Federal Reserve policymakers begin boosting key central bank interest rates. In addition to urging millennials to buy a property, Trulia is suggesting they purchase a property that stretches their finances, arguing that after a year or two during which time they are likely to have a raise or promotion, their house or apartment will begin to look like a bargain and will be much easier to finance.
However the article in the Guardian.com points out that for many this decision isn’t so easy to make and that even though home ownership can be advantageous, without proper planning it can end up as a financial nightmare. The article feels that urging millennial is to stretch themselves financially may not necessarily be the best course of action and anyone who does take this route needs to be very honest with themselves as to whether their finances will improve in the near future. It also suggests that anyone who is considering buying versus renting needs to ponder the stability of their job, their relationship or marriage and if they might move cities or states in the near future. If any of these questions raise doubts about remaining committed to a property for five years or more, then purchasing probably isn’t a good solution.
Whereas rental costs are limited to that monthly payment, the costs of home ownership can be much more complicated and include property taxes and house insurance and all the utility bills as well as repairs. Then of course there’s the question about the real estate market itself.