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to rent rather than buy you want to wait to buy only when mortgage rates are lower or prices are Fallen 10 15% so if I had to give an advice to anybody I would say rent today wait until mortgage rates are lower and all prices of Omar lower is not a good time to buy hello everyone today I'll discuss a Hot Topic dividing opinion in the real estate market shelter is one of man's basic needs but should you rent or buy a house norel rubini a guest on the pbd podcast advise viewers to rent now and buy later norel is an American Turkish Economist consultant and a Meritus professor at the stern School of Business at New York University what what do you like let's just say I'm your son okay and I'm your family I know you don't have any kids but let's just say you know I'm related to you you you're truly care about me making the right decision I come come to you and I say uncle I got a question for you I respect you a lot I'm thinking about buying a house right now you know should I buy right now should I wait right now today instead first of all those measure of a bubble in the housing market are showing fress but not a massive bubble like or6 or8 two uh the economy is still growing so the household might have a balance sheet problem the interest rates are starting to pay on the mortgages is higher but if you have a job in income you can still afford it three when interest rates were very low and you know as of two years ago you could get as a prime borrower say you could get a 10year mortgage for two and a half to 3% today is 78 uh many people locked in mortgagees a long maturity 10 20 30 years at interest rates they're much lower so the average person is not paying s 8% the average is paying something like between three and four some people less some people more and people have jobs so are we going to have a downturn in real estate yes is it going to be more severe in in commercial uh meaning offices and and uh stores and so on yes could there be risk also for housing yes but if we avoid a real recession people have jobs and income and have now locked in interest states are lower as some of those mortgages refinance then people are going to find much more expensive to pay their mortgages and today I would say uh given the ratio between prices and rents it's much more how to say uh much more reasonable for an individual to rent rather than buy you want to wait to buy only when mortgage rates are lower or prices have fallen 10 15% so if I had to given an advice to anybody I would say run today wait until mortgage rates are lower and or prices of Home are lower is not a good time to buy so that you know noral predicted the 2007 to 2008 suprime mortgage crisis in the US and the following Global financial crisis so you can't take his words with a pinch of salt though norio's advice may sound crazy because why would you rather rent a house when you could own it well sit tight as I explored norio's advice through the prism of facts so that you can make an informed decision I'll be analyzing the four main reasons why noral rubini believes it is better to rent now than to buy first and foremost he believes that houses are currently overvalued secondly he believes that interest rates in the US are very high thirdly he believes that housing inventory is currently very low his fourth reason is that it's cheaper to rent now than to buy owning a house right now you are likely to spend more on miscellaneous fees and maintenance join me as I delve deeper into all the concerns noral rubini has brought to our Attention Point number one rubini believes that houses currently are overvalued well data shows that a large percentage of houses in the US are overvalued a recent report by researchers from the Florida Atlantic University and Florida State University validates this claim the report is open- Source you can access it on business.
f.edu anyways this report analyzed 100 top US housing markets and guess what they found homes in 98% of these markets are overvalued pretty crazy right so if you're buying a home in these markets 98 times out of 100 you're paying an amount way above its value for a house well the reason isn't far-fetched there's a housing shortage in the US at this time realtor.com estimates this shortage to be between 2.3 million and 6.5 million housing units I'll explain the reason for this shortage later in this video but remember the law of demand and Supply when there's high demand and shortage of Supply prices go up therefore it would make sense to rent now instead of buying a house buying something not just a house is to have value for money essentially it means to get what you're paying for secondly rubini said that the interest rate right now is very high which makes the mortgage rates very high in the US a recent New York Times article by Gregory Schmidt claims that the current mortgage rates are the highest in 22 years what's the average mortgage rate in the US according to Gregory Schmidt mortgage rates are about an average of 7.23% on a 30-year fixed mortgage several factors influence mortgage rates and to help you you understand this topic better let me take a moment to explain how mortgage rates work since they usually announce it you might be tempted to think that Banks and lenders are responsible for fixing mortgage rates that would be wrong the biggest determinants of the mortgage rates are the MBS market and the Federal Reserve but right now we have the MBS Market why do we follow this this is basically what I follow okay it's telling me what's going on with the price of the mortgage Bond okay it's a bond that sells on Wall Street the yield on this thing is the biggest piece of your mortgage rate so what we follow here is this is what's going on with the price of the bond okay so is this price goes down mortgage rates go up it has an inverse let's think of it as a flip-flop if this is down rates are up this is up rates are down you can see the chart down below we've been in the red Dan Frio talks about the MBS Market influence mortgage rates what is the MBS Market how does it impact mortgage rates and how do they connect with the Federal Reserve let me break it down for you MBs is an acronym for mortgage back security it's a type of investment that purchases mortgages combines them into pools and then offers the investor the pools of loans as a single investment imagine you want to buy a house but don't have all the money to pay for it so you head to the bank for a loan remember that you're not the only person getting a loan from the bank to purchase a house millions of other people also collect bank loans for the same purpose instead of waiting for you to pay your loan the bank combines your loan and those of others into a single pool where other people can invest and make a profit this single pool created from all these loans is called mortgage backed security the MBS Market is where investors buy Securities backed by mortgage rates so how does the MBS Market affect mortgage rates the rise or fall of MBS directly affects mortgage rates the price of MBs is inversely proportional to mortgage rates when MBS prices rise mortgage rates fall and vice versa why is this so a rise in MBS prices indicates that investors are willing to pay more for mortgages hence the rate drop so how does this all connect to the Federal Reserve the major functions of the FED are to manage the money supply set interest rates and regulate the financial markets so about mortgage rates note that the FED doesn't directly set mortgage rates but it can influence them the FED manipulates this rate in order to speed up or slow down the growth of inflation the FED also maintains or changes its stance on buying or selling mortgage back Securities which also has a major effect on the movement of mortgage interest rates Joe manasa explains how the FED influences mortgage rates by adjusting the federal funds rate the federal funds rate is the rate at which banks Grant short-term loans to each other the FED sets this rate to control the money supply so how does the funds rate affect mortgage rates raising the funds rates has a directly proportional effect on the mortgage rates how banks will pay more for loans when the FED it increases the funds rate to maintain profit the banks will transfer these borrowing costs to Consumers through higher interest rates on several loans including mortgage rates here's the catch mortgage rates will not likely remain this high for much longer they could start dropping from late next year although experts differ on the rate ask Mark xandy he's Chief Economist at Moody later wait now I'm getting confused Mark when do you think that's gonna happen yeah no did I say was that a typo 2025 no I think 2024 by year year end this time next year I expect fixed mortgage rates to be around 6% Mark Sandy Chief Economist at Moody analytics a financial services company predicted that mortgage rates would drop to 6% between the last quarter of 2024 and early 2025 however the Mortgage Bankers Association is more optimistic they recently forecasted that mortgage rates would dip to about 5% by the fourth quarter of 2024 and other experts like Lawrence Yun Chief Economist of the National Association of Realtors also hold the same view so renting would benefit you more than buying a house right now before buying a house it would make sense to wait until the last quarter of next year when mortgage rates will reduce thirdly rubini believes that many want to buy a house rather than sell it which makes housing inventory low right now even if you could afford it it's hard to find a house to buy right now the housing market has yet to recover from several dips most notably the crash of the Great Recession and the covid-19 pandemic let me briefly explain how these events impact housing inventory first the Great Recession the housing market collapse was a domino effect of several events leading to the Great Recession housing prices were Rising years before the recession in a housing bubble people were buying homes assuming their prices would continue increasing and Banks gave high-risk loans to people with poor credit Banks packaged these loans into mortgage back Securities believing they would reduce the risk the bank Banks also sold these MBS to other countries spreading the risk globally unfortunately many people couldn't meet up with their loan obligation mortgages so MBS lost value this resulted in huge losses for many financial institutions some even going bankrupt consequently Banks stopped lending money leading to a credit freeze businesses and people found it extremely difficult to obtain loans many people lost their homes from foreclosure since they couldn't pay their mortgages leading to a crash in the housing market there was also the co9 pandemic of 20120 due to the pandemic many houses under construction had to be put on hold because materials were either expensive to buy or unavailable apart from that the general population increased because people had to stay indoors for a little over a year so while the demand for houses increased the supply was scarce another fact Factor responsible for the current house shortage is the Summer Rush late spring and summer seasons are Rush seasons in the housing market during this time most people decide to buy or sell their houses here's the catch while many people are in the market looking for houses to buy the irony is that not many people are selling simultaneously so you have more buyers than sellers the law of supply and demand kicks in again then the influx of institutional real estate invest investors into the market also worsened this situation using deed record data the National Association of Realtors stated that institutional Real Estate Investors moved their purchase of houses from 11.8% in 2020 to 13.2% in 2021 there's also the matter of regulatory barriers different parts of the US have regulatory barriers like zoning and land use building codes impact fees Etc these regulatory barriers discourage investments in real estate it's either the cost of the permitted materials for a house being overpriced or the allowed land allocation for a building being too small finally homeowners are unwilling to sell or move the reason is simple they won't get their money back if you sold your house the expectation would be to move to a better one many homeowners purchased homes when the mortgage rate was about 4% or 5% mortgage rates are higher now so selling their homes may seem like some profit however buying a new house would take up all the money if not more and put them at a loss these factors contribute to lower housing inventory although realtor.com recently reported a small rise of 0.
2% in housing inventory this isn't enough to meet the market demand it would take longer to improve the housing inventory and experts say they don't see this happening soon fourthly rubini believes that owning a house right now will make you spend more on miscellaneous fees and maintenance thus renting exempts you from the high costs of owning a home buying a house comes with extra costs apart from a huge initial investment you'll have to handle homeowners association dues Insurance property tax utilities Etc you're also solely responsible for any repairs especially if you buy bought an old home you'll still have to deal with the repair and maintenance costs over the years and don't forget you have a back debt a monthly mortgage that may Trail you for 17 or more years when you rent you spend less and save more you don't have to worry about repairs or maintenance and other costs associated with owning a home you only need to pay your rent for each month you'll also have access to amenities that would otherwise be expensive in many midscale to up Market at apartment complexes tenants are not charged extra for amenities like an inground pool or a fitness facility installing in maintaining these amenities would cost thousands of dollars for a homeowner who wishes to use them the costs of these items are included in their monthly homeowners association dues in addition tenants are presented with a more favorable Financial Arrangement regarding the initial payment in most cases tenants must provide a security deposit equivalent to one month's rent they would receive their deposit when they move out provided there's no damage to the rental property however buying a house with a mortgage requires an initial down payment of at least 20% significantly higher than a month's rent finally renting gives you more flexibility as you can move anywhere whenever you want add that to the piece of being debt-free thank you for watching are you considering buying a house soon or did you buy a house recently what do you think think about this topic let me know in the comments section below don't forget to like share and subscribe to finance soon Channel I'll see you in the next video
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