While summer 2022 felt like it came to an abrupt end, early fall has been a transition period in the weather... and the housing market.
I'm fielding questions from buyers and sellers about the impact of rising mortgage rates and home prices. I've also asked our friends at Spruce Mortgage for a Rent vs Own scenario based on current rates and purchase prices.
Please feel free to share this information with anyone you know who may be considering their options. Buying or selling real estate is a very personal decision, and I'm happy to help you navigate the process.
Housing Affordability in Vermont
Interest rates have increased throughout the year from the low 3.0% range in January 2022 to today's 6% range. This rise, combined with two years of price appreciation, has reduced housing affordability and softened sales.
The Vermont real estate market has followed the national trends--- although at a more moderate pace. Home sales have declined in northwest Vermont in the 15-20% range, depending on the market segment. However, it's important to remember that this decline is compared to 2021, a solid year yet an economic anomaly. Nationally, inventory levels have begun to increase. Locally, inventory currently remains at historically low levels.
Home Prices Are Not Declining
The talk of a recession and steep declines in the stock market are not necessarily indicators of a housing recession.
- The housing market is not crashing. It is slowing down from the frenzy of the past two years.
- Home prices are not declining or depreciating—appreciation is slowing.
- Most housing experts predict price appreciation to continue for 2023—at a much more reasonable pace of 3-4%.
Moving to a Buyer-Friendly Market
As we approach the end of 2022 and early 2023, home sales will continue to decline slightly or stabilize. Vermont continues to see healthy inbound migration and limited new development. Prices have stabilized, and only moderate growth is forecasted. The market is more buyer-friendly than in recent years despite higher interest rates. Sellers anxious to capitalize on their strong equity position and faster sales cycles are beginning to get off the fence as they see opportunities for their next move.
What is the Real Value of Homeownership?
Owning a home has financial and emotional benefits.
An obvious financial benefit is the appreciation of a property over time, as well as potential tax deductions. The less quantifiable yet sometimes more beneficial are the emotional benefits, such as feeling stability in where you live, being a part of a community, and feeling free to do something as simple as paint a room without worry.
Rent vs. Own 5 Year Benefit*
By Spruce Mortgage
Rent & Purchase price based on current market average for a 3 bedroom.
Cost to Rent a 3 Bedroom Apartment over 5 Years:
$2400/ month (includes 3% rent increase) = $152,903
Cost of Purchasing a 3 Bedroom Home over 5 Years:
Based on 30 year fixed, 5% down, $450,000 purchase price (including mortgage insurance, down payment & closing costs, taxes & insurance) at a rate of 6.5% (APR 6.548), and a conservative annual appreciation of 3%.
A. Total mortgage paid over 5 years = $204,887
B. Home appreciation & equity = $98,986
C. Tax benefit of mortgage interest deduction = $26,962
Cost of Ownership (A minus B minus C) = $78,939
Total Benefit of Purchase vs Renting Over 5 Years:
$152,903 - $78,939 = $73,964
Spruce Mortgage, CNMLS 49592
Reach out to your Spruce Representative for details.