To Rent, or to Buy? That is the question for Many St. Louisans in the Age of Covid
Updated: Nov 4, 2020
After more than seven months of living during the latest pandemic, many St. Louis residents are reassessing their housing situation. With more and more St. Louisans working, playing, and eating at home, the desire for the perfect place to live has never been stronger, and space and comfort are at a premium. Some people are looking to downsize for financial reasons or renovate while they have the time. Others are looking for their first home, apartment, or condo but are unsure how to start looking and most importantly what choice is right for their budget.
Whether to rent or to own if you’re looking for a new home is probably the most important question you’re facing right now. And while it makes good economic sense to buy in St. Louis, there are several factors that make your decision more complicated and more personal, including your budget, your choice of neighborhood, job security, and the length of time you plan to stay in your home.
The joys of home ownership and the good news
There is a lot of good news for people looking to buy right now: interest rates are at an all-time low, and the average U.S. mortgage rate, for a 30-year fixed loan, fell to 2.8% this week—a record low, according to a recent article in Housing Wire. Many realtors agree that this is the best housing market they’ve seen in twenty- five years, according to Jan Kosmal, a veteran St. Louis realtor for Coldwell Banker. There is also more money available for buyers to borrow, making home ownership more accessible than ever. Owning a home also offers more security, equity (the portion of your home you actually own), and stability.
Also good news for homebuyers is that listings have increased for the month of September (9.3 % percent for homes, 21.2 % for condos and townhouses), according to the latest St. Louis Association of Realtors Report.
Realtor Sabrina Robb with the Robb Group agrees that owning is the way to go for many local home seekers. “I usually encourage people to buy because if they rent, they’re never going to get that money back. You have to weigh whether you’re going to make or lose money on your house. The other factor to consider is the amount of time you want to stay in a location. If you’re planning to stay in one location for more than three years, home buying is the best option.”
According to realtor Sharon Sullivan of Berkshire Hathaway HomeServices Select , “I usually advise clients to consider buying if their budget is more than 1,000 dollars a month for housing and if they’re planning to stay for at least a year because at least they’re getting some equity out of their investment.”
With the average rent in St. Louis reaching $960 a month for a 847 square foot apartment (according to rentcafé.com) and the average home cost ranging from $139,496 (according to Zillow.com) to the median price of $245,000 (according to the latest report from the St. Louis Association of Realtors), you are likely to be able to afford a mortgage that would be equal or slightly higher than your monthly rent, depending on the neighborhood you want to live in.
When to buy:
· You are planning on living in the same place for three years or more
· You want to live in a specific school district
· Your budget for housing is more than $1,000 per month
· You have the money for a deposit and closing costs
The challenges of owning right now
While most the recent news about home ownership is positive, there are drawbacks to consider when making your investment. The recent pandemic has made home improvement more popular than ever, with so many people staying home. That has put a high demand on both materials and labor, according to recent home buyer Ashley Marshall, so if your new home will need remodeling or repairs, you could be waiting much longer and paying much more for time and materials. Contractors are in high demand and their estimates can be up to more than 50% higher than usual and their cost of materials up to 120% higher, especially for materials like lumber.
The other challenge is that while demand for houses goes up, inventory is down significantly, which makes finding your ideal home more challenging. The number of available houses has decreased 32.2% since 2019 for houses and 3% for townhouses and condos. The scarcity of houses also means that offers from other buyers have increased significantly, with some buyers making offers from $5,000-30,000 above asking price. So a home that may seem well within your budget to begin with may not be by the time you have made an offer. The other risk, according to realtor Josie Herrera Drury is that the final appraisal may be below the offer you’ve made and you have to decide if you want to pay more significantly more than the house is worth.
The Upside of Renting
According to many realtors in the area, as well as real estate sites like Redfin, there are certain people who would benefit the most from renting. If you are in love with a certain area, like the Central West End, for example and looking for specific features like nightlife, convenience, walkability, restaurants and bars, renting may be the best option as apartments are more plentiful and easier to care for. Older couples looking to downsize or younger adults looking for their first apartment who may be planning to move in a year or two would also be wise to rent. Rents in St. Louis range from $502 a month to $1640 a month depending on the neighborhood and there are many areas in the middle to choose from.
For others, a home may be in your budget but you may not have the cash upfront to pay for closing costs and a down payment, which can set you back thousands of dollars. If you’re looking at a house that costs $250,000, your down payment, which is usually 20% of the home cost, could set you back at least $50,000. It may be wise to rent for six months to a year so you can save the money you need to buy later on. Another upside of renting these days is that many landlords are offering a month or two of free rent or are eliminating a deposit for tenants with good credit, which also makes saving for a house easier down the line.
One of the biggest factors in deciding to rent or own is job security. If you are freelancing, a consultant, or a small business owner, your income can fluctuate from month to month, which would make home buying much riskier. If you can’t pay your rent, eviction is the worst that can happen. While that situation is not ideal, if you can’t pay your mortgage, the consequences are dire and long lasting, possibly leading to foreclosure and the bank taking your house.
When renting is right for you:
· If you don’t have the money upfront for a down payment
· If you’re set on a specific neighborhood that has more affordable rentals than available houses
· If you’re downsizing or looking for your first apartment
· If you freelance or your income fluctuates from month to month
While there are upsides to renting for the right person, there are drawbacks. Inventory for houses for rent is also low, so certain neighborhoods like Brentwood or Richmond Heights offer very little in the way of choice. Owners in these neighborhoods would rather sell houses than rent them. This also creates a higher demand so you may be competing with several applicants for one lease. As Josie Herrera Drury confirms, the market for renting houses is sometimes as competitive as it is for owning, and you’re not gaining any equity while you’re paying rent.
The Good News for Everyone
While renting and owning both have their risks, the reality is that the St. Louis housing market is thriving, which is beneficial for buyers, renters, and sellers. While St. Louis County is still a seller’s market, much of downtown St. Louis is still a buyers’ market, according to realtor John Brueggemann of Tadlock Brueggemann, and buyers can still find good deals in several areas of downtown. Even with the pandemic, the market shows no signs of slowing down. Interest rates are not likely to rise in the next ten years according to most experts, which is also good news for buyers. The decision to buy or rent is very personal, and with the right advice and guidance, you are bound to make the right choice for you and your wallet.