Many people are asking me if it now makes more sense to rent a home in Ann Arbor than it does to purchase a home due to the new tax laws and rising homes prices in the area. Each family’s situation is different, which is why we are here to help you sort out the pros and cons of renting and buying … and make the right decision for your family.
As real estate agents, we are bullish on the Ann Arbor/Ypsilanti housing market – and with good reason! The Ann Arbor/Ypsilanti area continually gets great ratings and hits all the lists of best places to live. The website “Livability” named Ann Arbor as the top place to live in 2018. Ann Arbor received an overall score of 694, coming in ahead of places like Manhattan, Kansas, and Corvallis, Oregon.
Ann Arbor also was recognized this week by National Geographic’s Traveler magazine as one of 29 “Cities on the Rise,” recognizing A2 for its environmental focus and natural beauty in the “Greenest” category.
Just because Ann Arbor is such a great place, however, does not mean it necessarily makes sense to buy real estate here. That depends on your situation. Remember, though, housing is more than an investment. For most of us, purchasing a home is more about lifestyle, stability and quality of life. My best suggestion is to carefully consider a purchase for how it meets your specific needs in these areas.
Things to Consider When It’s Decision Time
Short of a crystal ball, the best you can do is arm yourself with as much good information as possible. Here are some important things to think about to help you make sense of the situation and make the best decision for you and your family.
- The new tax law will not have a significant impact. The new tax law increases itemized deductions. As written, the standard deduction amounts will increase to $12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly and surviving spouses. For moderately priced homes, this will eliminate any advantage of the mortgage interest deduction. For households at about $150,000, this erodes the the tax advantage of buying, but probably won’t be a significant factor in a family deciding to buy or rent. Lifestyle considerations and the ability of families in this income bracket to absorb the loss in the tax benefit will have greater importance than the tax difference.
- There is no housing bubble at this time. We recently told you how to find great housing deals in 2018, so checking out that post would really help home buyers here. According to the The S&P CoreLogic Case-Shiller U.S. National Home Price Index Home prices in much of the country are now higher than at the height of the housing bubble; however, they are inline with an historic 4% growth trend line. Housing has provided a consistent 4% or more return over the long haul with all the added benefits of calling this investment a home, including all the utility, peace of mind, and creative expression that home ownership offers. Plus, it is a leveraged investment. Waiting on the sidelines for housing prices to come down may not pay off in a better home deal.
- Home prices in Ann Arbor have increased by 43% – According to Zillow, home prices in Ann Arbor increased 6.7% percent last year and are projected to increase 3.2 percent this year. Over the last five years, housing prices in Ann Arbor are up 43%. This has been a fantastic equity-building period for people that have owned homes.
- Homeowners have 44 times great net worth than renters . The Federal Reserve Survey of Consumer Finances, revealed that the 2016 median net worth of homeowners increased by 15% since 2013 and was $231,400. At the same time, the median net worth of renters decreased by 5% ($5,200 today compared to $5,500 in 2013). These numbers reveal that the net worth of a homeowner is over 44 times greater than that of a renter.
- Interest rates are rising and the Federal Reserve has made it very clear that it is their plan to keep increasing them. This will make housing more expensive and will begin to cause the moderate income purchasers to be priced out of the market. So, a buyer that is on the edge of affordability now may not be able to buy going forward.
- Rents are rising as well. All of these higher prices are being reflected in higher rents. According to Rent Jungle, as of December 2017, average rent for an apartment in Ann Arbor, MI is $1604 which is a 10.16% increase from last year when the average rent was $1441.
Help Is Always Available
I hope these thoughts and resources are helpful for you when it comes time to sort out the decision to rent versus buy a home. We are happy to answer any questions you may have – with no obligation. Just reach out to us on the contact form below or give me a call at (734) 845-9700.