As predicted, the Orange County real estate market is already getting hot again! Buyers are eager to take advantage of the massive drop in interest rates and slight dips in property values as compared to the stormy winter. This market shift comes at a time when the Consumer Price Index shows rental rates in Los Angeles and Orange County have increased at their fastest pace in eleven years, growing at an average annual rate of 5.5% year-over-year (February 2018 through February 2019) and outpacing all 24 metro areas nationwide tracked by the Bureau of Labor Statistics.
With interest rates dropping significantly and rental rates increasing at over triple the amount of national inflation, now is the perfect time to reassess the benefits of buying versus renting a home in Orange County. Part One this week breaks down the pros and cons of buying. Next week, in Part Two, you will find the pros and cons of renting and how to ultimately decide which is best. Part Two will also feature two online calculators that allow entering specific numbers and assumptions for those interested in taking a closer look. Beyond the basic financials, each part also addresses lifestyle concerns.
Buying
Pros of Buying
Appreciation over the long-term: While nobody knows exactly how much home prices will change over time, values over the long run in Orange County have historically outperformed the vast majority of markets nationwide. This trend is expected to continue due to high desirability, increasing wages, and limited supply.
Benefits of leverage: When a property goes up in value, you make money on both your down payment and money borrowed from the bank. For example, if you put 20% down on a million dollar house ($200,000) and borrow 80% ($800,000) and the property goes up in value 10%, then leverage has created a 50% ($100,000) return on your initial $200,000 investment! Where else will you find that kind of return?
Conservative investment: Home ownership is typically a stable investment that secures a place to live.
Disappearing mortgage payments: Eventually, you will own your home free and clear with no mortgage payment every month.
Equity for your heirs: Wealth created by home ownership can be passed on to future generations. California’s Proposition 13 also allows passing on your limited tax base price (at a maximum 2% tax increase per year) to your heirs.
Fixed monthly payments at currently low interest rates and forced savings: At first, your combined mortgage, property taxes, and insurance may seem like a steep amount to shell out each month. With a fixed rate mortgage, though, this amount seems relatively less and less every year. A portion of these payments is paying off your principle, effectively forcing you to save this money every month.
Getting involved: Homeowners tend to grow more involved with their communities. Renters can face a certain stigmatism from the assumption they are only there short term.
Home is where your life happens: Owning a home, you will experience the pride of ownership, be more likely to live there longer and create more memories.
Inflation proof investment: Generally, as the cost of living increases, so does the value of your home. Owning a home, your rent does not increase every year. In Orange County, the Consumer Price Index shows rising rents are currently the greatest driver of overall inflation. Owning a home is your greatest protection against this phenomenon.
Cons of Buying
All of the maintenance costs: Home ownership means gardening or hiring a gardener, termite treatments and occasional repairs, pool cleaning, electrical, plumbing, appliances, roofing, and so on. Some people would rather have a landlord deal with these things for them. But some enjoy the pride of ownership and working on their home. And is it really that much work?
Buying expenses: Title and escrow fees, home inspection fees, potential HOA fees, pro-rated property taxes, and other expenses involved with buying a home are not applicable when renting.
Cost of lost opportunities: Purchasing a home is a huge investment. This means you will not have that money to make other purchases or investments. Some believe they might make higher returns on their money in the stock market or elsewhere. Others want to move around more.
Difficulty moving: Although some people keep their homes as rentals or second homes when they eventually sell and move, most folks have to sell their home in order to afford a new one. Selling a home is a multi-faceted process involving a fair amount of time, effort, and a thick stack of paperwork. A good real estate agent, though, can make this process seamless.
Ocean Real Estate News 