Home prices are as high as ever, but what do higher interest rates mean for the property market here in southwestern Washington? Is it smarter to rent, or is it time to buy before mortgages become even more expensive?
Use our guide and handy rent or buy calculator to get a grip on the changing property market in southwestern Washington.
WHAT’S DRIVING PROPERTY PRICES?
Like almost everywhere in the country, property prices are higher in our area than a year ago. Housing prices rose 13.6% in Cowlitz County in the first quarter of 2022 compared with the first quarter of 2021, but the number of house sales rose only slightly by 1.3%.
This reflects the acute housing shortage in many largely rural counties. It means home prices will stay high even if demand slows, while higher interest rates mean buying a house for the same price is going to be more expensive. Yup, it’s still a seller’s market.
PAYING A MORTGAGE VS. PAYING RENT
So, what’s better — paying a hefty mortgage or waiting out the market by paying rent? Let’s look at the numbers:
The current cost of renting a three-bedroom apartment in Longview is estimated at $1,575. Meanwhile, the average price of a home in Longview in April was $375,000. For a 30-year fixed mortgage with a down payment of $20,000, calculated at the estimated state average of 4.65%, this equates to a monthly payment of $1,727.
That seems like only slightly more cash, but once we add in the likely costs of homeowners expenses like home insurance and property taxes that monthly payment jumps to $2,148 — more if you must pay mortgage insurance. And that does not include maintenance and upkeep, homeowners fees, plus the small matter of $20,000 for the down payment.
THINKING LONG TERM
True, month by month, owning a property is more expensive, but that starts to change when we look at the costs over time. The longer you can afford to stay in a home you own, the more it benefits you.
Fixed-Rate Investment Vs. Rental Increases
With a fixed-rate home loan, your monthly payment stays the same. Meanwhile, your landlord is free to raise rents as they see fit. With all the other costs of homeownership, that might not make much of a difference for a year or two — but it does over 15 or even 30 years!
Rental rates are already quite high in Longview, but let’s say they continue to increase at 5% per year. After 12 years you would be paying $2,000 a year more for the rental than on that home loan on the $375,000 house — and that excludes any appreciation in the value of the property!
Property taxes can be a hard dose of reality, but owning a home also offers specific tax advantages. Most importantly, homeowners can deduct the interest they pay on their mortgage from their taxes, as well as on loans funding home improvements.
You can also deduct state and local property taxes from your income taxes, as well as your mortgage insurance, and even the cost of buying down points on your mortgage. Your landlord will enjoy these benefits, but as a renter in his house, you will not.
The biggest advantage of owning your own home, however, is the stake you build in its value. While the money you pay to your landlord goes straight into their own pocket, the money you spend paying down a mortgage goes to securing your own share of your home.
It means that when you choose to sell your home, the percentage of your mortgage that you have paid back comes right back to you. And, if the value of your home appreciates, that extra value belongs to you. That is why homeownership is America’s biggest single source of wealth.
How does that work? Let’s say you stayed in the home we spoke about earlier for the full 30 years of the loan term. If rents and the value of your home both rose by just 2% a year over that time, you would save more than $188,000 by buying — and you would own your own home at the end of it. Bear in mind, too, that property prices have more than doubled in the last 10 years!
Hard to imagine? How about you signed the 30-year loan but you only stay in the home for 15 years? You would still save more than $78,000 compared with renting. Over just five years, you would save close to $22,000 and you would still walk away with your equity when you sold.
LET OUR CALCULATOR HELP YOU DECIDE WHETHER TO RENT OR BUY
Looking at things this way, buying starts to make sense if you are starting a family, building a career, or looking to stick around in our community for anything more than a couple of years.
The biggest obstacle to homeownership for many people in southwestern Washington is raising the ready cash for a down payment. As a local credit union with deep roots in our community, Fiber Federal Credit Union has been opening doors for Cowlitz County families for decades.
We offer all our members competitive loan rates and the ability to work with a local loan officer. We also offer:
A variety of terms including 10, 15, 20, and 30-year fixed-rate loans
Low down payment options including FHA and VA loans
Jumbo loans for competitive housing markets
Run the numbers on our rent or buy calculator. If you are ready to buy, we’re ready to help you find a place to call home.
Need more detail on our mortgages? Check out our mortgage loans today!