Introduction
Embark on a Homeownership Journey and learn from one individual’s personal story of overcoming challenges and achieving the dream of owning a home.
Being a single mom for so long, being able to buy a house was always something I wanted for my daughter. But it was always out of the picture. I was not very good with my money. I was living paycheck to paycheck. She was very nervous about buying a home, and she didn’t think that we could do it. To buy or not to buy has never been a simple decision.
That won’t fit in here. I don’t think so. And this ever-changing housing market isn’t making it any easier. With surging mortgage rates, record-breaking rents and home prices, a potential economic downturn, and other lifestyle considerations, there’s so much to factor in.
This is an extraordinarily unique market because of the pandemic. And because there was such a run on housing, so you have home prices very high, you also have rents very high. On average, across the 50 largest United States metro areas, a typical renter pays about 40% less in rent than a first-time homeowner.
However, that’s not the case for everyone. We will be paying close to the same amount but not have any of the amenities. It just makes more sense to make this move.
Prospective homeowners and investors often travel across the country and sometimes even the world seeking more affordable markets. Right now, a few of those places are Cleveland, Ohio, Pittsburgh, Pennsylvania, and Baltimore, Maryland.
It doesn’t matter if the market is going to crash or not; something’s going to happen, but we’re not sure what; maybe it’s going to be back again. Maybe it’s not we’re going to keep going doing. I was at work, and I got a phone call from Stephanie, and she said that they had to evacuate the apartment.
It didn’t register at first. I still get choked up thinking about it. I just raced home, and the police tape was over. I didn’t know where she was at her, and she and the three girls were just in tears. I’m sorry. I don’t like talking about it.
Current Market
Leland and Stephanie Jernigan had to move out of their Cleveland apartment in January 2019. A neighboring apartment had a fire, forcing them to stay with family for a few days and then a hotel. Just 10 days after Stephanie gave birth to their daughter, Tatum. She slept in her car seat the first night because we had nowhere to put her.
Leland Jernigan always dreamed of purchasing a home of his own. But that fire put a wrench in his plans. We had a little over $5,000 saved. We were going to use that to try to get a place, a house of our own.
I had to utilize a lot of that money to find a place and to buy everything else that we had lost. The house was just totally taken off the table. And as a man, you don’t want that for your wife and your kids, like you want to be able to provide. On March 16, 2020, I got a phone call from my boss saying, Hey, we’re closing up.
Meanwhile, Stephanie was on maternity leave and demoted as a result of the pandemic. Within a few months, Leland found a new job. While it pays about $20,000 less than his previous job. The family is finally back on track with their savings. On April 4, 2023, they closed on their first home.
Tatum talks all the time about going to the new house going into the new house. Is it our time yet? That’s what she says. It’s not my turn. It’s not your turn. You’re right. It’ll be your turn soon. I cannot wait to see her face when we walk in the door.
After about a decade of record low mortgage rates and record high home prices, the United States housing market has slowed down. From January 2022 to January 2023, sales declined by 37%. And while prices increased 1.3% during the same time, those numbers drastically fluctuated throughout 2022.
And while it’s often said that buying a home is better than renting, it’s not as straightforward right now. In December 2022, in 45 of the 50 largest US metros, it was more cost-effective to rent than buy. That’s up from 30 markets from the prior year.
In the top 10 metros that favored renting, monthly starter homeownership costs were an average of $1,920 higher than rents. And the gap is only getting bigger. In December 2022. In the 45 areas favoring renting, renters received more than $900 on average, whereas in 2021 renters received about half of that.
We saw the 30-year fixed go from less than 3% to over 7% in the course of just one year—that’s very dramatic, and that made that monthly payment more than twice what it was the year before and unaffordable for a lot of folks. So that’s why the housing market really stuck out in the fall.
Interestingly, we did see it bump back up in January when the 30-year fixed pulled back towards 6%. People really rushed in—we saw pending home sales, which are a measure of signed contracts. That’s people out shopping for homes during the month that jumped over 8% in January compared with December, and that was surprising, but it was people saying okay, maybe I’ve got a chance to get in.
As for the five areas in 2022 and 20 areas in 2021 where buying made more financial sense, families saved about $240 on average in both years. And Cleveland was number one on that list in 2021. While the city has since flipped to the other side according to averages, it’s not by much.
The Jernigans purchased us, the girls, to have separate bedrooms that are bigger than this home for $285,000. About $100 per square foot. The average rate on the 30-year fixed is 6.44% as of April 2023. The Jernigans locked in 6.625%,
taking their monthly principal and interest to about $1,800.
The bottom part is all of your grandma’s, and the top part is all of our bedrooms. Our bedroom is that big from edge to edge. A huge backyard that Tatum can run around in, a four-car garage.
Markets in the U.S. in which homeownership offers lower monthly costs include Memphis and Pittsburgh, among others. Nationally, home prices were higher at the beginning of 2023 than they were at the start of 2022. But that’s also constantly changing. So how does one decide during a time like this?
Rent vs. Buy
There are, of course, pros and cons for each. Let’s start with renting. The pros are that you don’t need to worry about repairs, and you can pick up and move anytime. Cons include giving your money to someone else and building equity on their investment as opposed to your own.
You don’t have as much control over how long you can stay, and rent can change at any time if you’re not in a rent-stabilized home.
You also have no say in renovations; construction, as I can attest, can be extremely loud, and you’re likely limited to how much you can change the space to your liking. Moving on to buying, pros include having the ability to do what you want with the space; you’re investing your money in something that will hopefully appreciate; tax incentives; you could stay as long as you would like; more financial predictability as long as you have a fixed interest rate; and, of course, pride in owning your own home.
The cons are that you’ll likely be in a smaller space for the same price as if you were renting if you’re buying in an urban area, and you have a lot more financial responsibilities, including upfront fees such as a down payment and closing costs, not to mention property taxes, likely a mortgage, and condo and maintenance fees depending on the type of home you purchased.
The best way to make this decision for yourself is to take a closer look at your finances. You don’t buy a house based on the price of the house; you buy it based on the monthly payment. That’s going to be principal and interest and insurance and property taxes.
If that calculation works for you and it’s not that much of your income, perhaps a third of your income, then it’s probably a good bet for you, especially if you expect to stay in that home for more than 10 years. You will build equity in the home over the long term; renting a house is really just throwing money out.
For the Jernigans, that calculation looks like this. If they renewed their lease, their rent would go up to $1,700 per month. Plus they pay $340 for storage and $50 per month for renters insurance, bringing their monthly expense to $2,090. But at their new house, their monthly principal and interest will be $1,792.
Plus, mortgage insurance will be $125 and estimated escrow $447, bringing their monthly payment to about $2,365. If you subtract the $1,000 Leland mother’s is contributing, which is $100 cheaper than what she would be paying in rent, that brings their total monthly expense to $1,365. This move, expanding their space threefold and allowing them to take care of Leland’s mother, will save them more than $700 per month.
Most will see their housing wealth grow over time, be it 20 years or 30 years; it depends on how long you want to be in the home. If you only expect to be in a market for perhaps five years, it might be better to rent because that’s not a long enough term to see real housing wealth grow.
So it depends on what your trajectory is for living somewhere and how much you want to invest. What makes sense for you and your family is also going to depend on where you plan on living.
In the first two years of this pandemic, we saw a run on what we call the Sunbelt, that is, areas that are in the South. Also, areas that are out in the suburbs.
As people left urban areas. We saw that in the Northeast and California areas, they saw less sales and less appreciation; the Sunbelt saw more and higher price increases. In the past six months, the focus has shifted from the South to more midwestern areas, as affordability has become an issue with inflation.
Conclusion
Buying a home can be a path to financial stability and personal satisfaction, but it’s a decision that requires careful consideration of current market conditions, personal finances, and long-term plans.
For families like the Jernigans, the dream of homeownership is achievable even in a challenging market, provided they weigh the pros and cons carefully and make informed decisions based on their unique circumstances.