February 17, 2019

Rent or buy? The smart money is on home ownership


Have you ever heard someone say they rent because they do not want to be saddled with a mortgage?

Karen Randolph
2019 NETAR President

Think about it. Unless you are living rent-free with your parents, it does not make any difference whether you are buying or renting, you are paying for housing. As a homeowner, you can pay your mortgage off.  Renters are paying their landlord’s mortgage and building their wealth.

Here is a fact of life as explained by Entrepreneur Magazine in “12 Practical Steps to Getting Rich.”

“While renting on a temporary basis isn’t terrible, you should most certainly own the roof over your head if you’re serious about your finances. It won’t make you rich overnight, but by renting, you’re paying someone else’s mortgage. In effect, you’re making someone else rich.” That statement removes the sizzle off ads touting the luxury apartment lifestyle.

Those stodgy Census Bureau spreadsheets offer additional hard data about renting and homeownership.

The current report says the median rent in the three-county Johnson City Metropolitan Statistical Area (MSA) is $658 and $629 in the four-county Kingsport-Bristol MSA. The median (frequency distribution) indicates half of the renters are paying more than the median and half are paying less.

A little web surfing shows as of this month, the average rent for a one-bedroom apartment in Kingsport is $643, a two-bedroom goes for $834, and the three-bedroom units average $867. Switch to Johnson City and the average one-bedroom goes for $658, a two bedroom weighs in at $784, and three-bedroom units goes for $1,053. 

The rule of thumb for how much a person should pay for housing tops out at 30 percent. Paying more means you are “housing stressed.” Our number-crunching friends at the Census say 49 percent of Johnson City metro area renters pay 30 percent or more of their income on rent. Kingsport-Bristol renters fare a little better. Only 41.8 percent pay 30 percent or more. Unfortunately, Census does not have a 31 percent or more category, but experts say most renters pay 31 percent or more.

Here is another thought. The more a person spends on housing the less disposable income they have to participate in an economy driven by consumer spending.

There are housing stressed homeowners. In the Johnson City area, we are talking about 24.9 percent and 24 percent in Kingsport-Bristol.

Here is another fact of life to consider. A mortgage is a form of forced saving for the owner. It is a savings that allows them to build equity that can be tapped into later. Renters guarantee the landlord gets the equity, and the rent never ends.

Reports that calculate whether it is cheaper to buy or rent and are beginning to come down on the rent side here in the Tri-Cities. It is gaining because our booming housing market as resulted in some tidy price appreciation for owners and higher home prices. At the same time, rents are increasing faster than mortgage payments or wages, according to latest reports.

All this information triggers attention and rumination as we approach the spring homebuying season. Inventory is tight which means finding the right home can be as much of an availability as an affordability issue. The area needs more affordable housing, but affordable housing opportunities are out there. Partnering with a professional Realtor® who keeps his or her finger on the pulse of listings and other market conditions is the best way to get a first shot at the opportunities.