This Week In Your Wallet: Rent vs. Buy? The Answer Is Changing

This Week In Your Wallet:
Rent vs. Buy? The Answer Is Changing

Those of you who’ve been reading this newsletter for a while may recall the saga of my move from NYC to Philly. Short version: We bought a Philly condo in late 2019 and started a big reno. The whole thing had just been gutted when COVID shut us down. As a result, we held onto our home in the NY suburbs for an extra year — and sold it in 2021 for (yay) about 25% more than it would have gone for the year earlier. Well…it just sold again. For 14% more.

If you’ve been wondering when something — anything — will cool off the white-hot housing market, we may have found it. A new report shows that having a mortgage is now more expensive — by a longshot — than renting. On average, having a mortgage today costs $839 more per month than having a lease — a difference nearly $200 higher than at any time in the past two decades. Nationally, a mortgage will now run you an average of 31% more than renting, but in some major metropolitan areas where prices have surged, it’s more drastic. In Raleigh-Durham, homeowners are paying an average of 42% more than renters, in Nashville, 38% more, and in Phoenix, 35%.

Yes, the numbers are striking, but for the last two years we’ve watched housing costs soar and countless prospective buyers get priced out of the market, so should we really be shocked? With that said, these numbers mark a big change from just one year ago at this time, when the difference between owning and renting was virtually flat.

If you’re still debating rent vs. buy and trying to keep up with the latest headlines at the same time you’re squirreling away your 20%, my advice is this:

The only numbers that should be influencing your decision are your own. In other words, if you’ve got your down payment saved, your credit score in tip-top shape, you’re planning to live in the place for at least five years and you can find a decent deal, then go for it. And yes, these deals are coming. Listings are up sharply and pending home sales down with the rise in mortgage prices. Even if you don’t end up selling a home in a hot market to a tidy profit, paying off a mortgage has always been a way to build a substantial, supplemental savings stash. And no one wants to spend a lifetime at the mercy of a landlord eager to maximize profits every time lease renewal rolls around. Likewise, if you’re still trying to bump up your credit score or your down payment, then renting may make a lot more sense for now. And if prices actually fall over the next year or two? (Trust me. It can happen. I bought that place in the NYC suburbs in 2005 at the height of the last housing boom, then watched the price drop 20 - 25% in short order.) No one thinks we’re in for a correction of that magnitude. But as economist Mark Zandi of Moody’s Analytics told me a few weeks ago on Everyday Wealth (here’s the episode), in places where prices are really jacked, you could see them float down around 5 percent. You may be glad you waited.

Retirees: Weathering The Recession

Since 1854, we’ve seen it happen 35 times: Recession. Because what goes up must come down (at least a little bit.) And the reality — albeit grim — is that “sooner or later the country will fall into a recession, and that’s just the nature of the economy,” writes John Waggoner for AARP, as part of a Recession Survival Guide For Retirees. A downturn, he explains, is inevitable. After a boom, there’s a bust that follows. No, we don’t want it, but we can survive it by knowing what to expect and how to stick to the basics. Remember, history tells us that recessions don’t last. (Post WWII, they’ve been six to 12 months on average.)

Those words are little consolation if you’re closing in on retirement and worried about protecting the nest egg you’ve stocked away. But, again, we’ve been through this so many times that financial experts have the playbook down. Make sure you’ve got at least 6 months of expenses in reserve (or if you spent through much of what you had in 2020) then now’s the time to get that fund bulked up again. Don’t be tempted to move your necessary cash into the market — keep it in a money market fund or high interest rate savings account instead. With interest rates rising, look to pay down as much debt (particularly high interest rate credit card debt) as possible. Once you start pulling money from your retirement accounts, try to minimize withdrawals (keep them closer to 3 percent rather than 4 or more) while the markets are still deflated. . And take heart in the knowledge that by the time a recession has been officially declared, it’s probably already nearing the end.

Managers: Here’s How To Increase Your Retention Rate

More new hires are leaving positions within their first 30 days on the job than ever before. That may sound crazy to many of you (particularly if you were one of the millions of people who spent years looking for work after 2008) but it's a reality of our better-job, higher-salary economy. In the Wall Street Journal this week, Tom Gimbel, founder of recruiting firm LaSalle, shares how to keep new hires engaged and motivated. Making true connections, telling company “why” stories for context, involving the company’s leadership with the new hire onboarding process, and showing empathy that allows for a safe space to make mistakes — can go a long way in keeping new hires on the job. In other words, as much as you might like to, you can’t just just kick your feet up as soon as they accept the offers. Taking a vested interest in their success can help you avoid feeling like your office has a revolving door. And if you’re still struggling with the best techniques, ultimately, think back to what helped you when you joined as a new hire. Do that.

Traveling? Read What This Flight Attendant Wrote.

If you’re flying anytime soon, then this viral Twitter thread from a flight attendant who has clearly had enough, should be required reading. Airports are in chaos this summer because the airline industry simply wasn’t ready for the summer travel boom of 2022. And just like other industries, the airlines are understaffed and overworked, which all leads to delays and various other travel snafus for you. The thread is chock-full of great advice for anyone flying this summer. For starters, if you’re laying over, give yourself three hours at a minimum — a single hour is “just asking for trouble.” Book directly with the airline. If you book your travel with a third party service, airlines will be less likely to help you re-book your flight if it gets canceled. (Yup. I can attest to that.) Make sure you have the airline’s app. If you get stuck, you can do whatever you need to do from there (including tracking your bags) while everyone else is still waiting in line. Plus, if your flight gets canceled, the app will update you before the crew even knows, and you can quickly rebook onto another.

Oh, and get the trip insurance. Yeah, I know, I’m not a believer either. But lately, I’ve been buying it — or refundable tickets when flying on business — too.

Have a great week,

Jean

HerMoney is not a client, agent, representative or affiliate of EFE. Edelman Financial Engines (“EFE”) is a sponsor of the "HerMoney with Jean Chatzky Podcast,” created by HerMoney Media. Inc. (“HerMoney”) and provides cash compensation to HerMoney Media. HerMoney receives a sponsorship fee from Edelman Financial Engines depending on the number of podcast downloads, as measured by the end of the calendar year. The sponsorship fee is paid on a quarterly basis each year. In turn, HerMoney also provides promotional deliverables regarding EFE on the HerMoney podcast, newsletter, and social media channels. Due to this sponsorship arrangement, HerMoney has an incentive to endorse EFE and its services.

The HerMoney podcast is proudly supported by Edelman Financial Engines. Get sophisticated wealth management for all aspects of your financial life. See more at EdelmanFinancialEngines.com.
Sponsored by Edelman Financial Engines – Modern wealth planning.
All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor. Results are not guaranteed. AM1969416