This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.

Renting vs. Buying a Home

One of my followers asked me about some of the financial benefits of owning your home as opposed to renting. I find this topic interesting as there really is a “laundry list” of reasons that, from a financial standpoint, owning a home is better than renting.

I’m Matthew Gardner Chief Economist at Windermere Real Estate and welcome to this month’s episode of Monday with Matthew. Let’s get to the topic at hand. Of course, I don’t have time to go through them all today but here are the ones that I think are the most compelling: wealth building and tax benefits.

• Renting vs. Buying: Which is better for you?

The Financial Benefits of Homeownership 

The first thing to understand is that, over time, a mortgage becomes easier to afford. You see, when you buy a home, the mortgage payments themselves don’t change and, over time, your earnings rise but the mortgage payment doesn’t. Simply put, unlike renters who generally see their rents going up every year, your mortgage payment never will and because you’ll hopefully be making more money as time goes by, the share of your income that you spend on a mortgage payment becomes less & less.

The next advantage to owning your home is that it is a good long-term investment. Of course, some will say that this is not the case because we went through the housing bubble bursting back in 2006 but there have actually been very few times in history when home prices have seen any long-term downward adjustment.

Now I know some will say that investing in stocks would give you a higher long-term return. My response to that would be I’ve never seen anyone living under a stock certificate. Have you?

My next reason for believing that ownership is better than renting is rather simple, and that is because a portion of every mortgage payment you make goes toward reducing the principal amount of the loan. Of course, during a majority of the term of the mortgage most of the payment is going towards interest but, a small portion is paying down the debt itself—in essence making it a forced savings plan, building wealth along the way.

Tax Advantages of Owning a Home

But what about the tax advantages? Owning a home offers unique and substantial ways to save on your taxes every year. Firstly, you can deduct your real estate taxes every year. Now, tax reform has limited the total allowed deduction, but it is still meaningful. You can also deduct the interest you pay on your mortgage. Again, there are some limitations but, depending on where you live you could save a significant amount.

And finally, let’s talk Capital Gains Taxes. When you sell your primary residence and have seen its value grow since you purchased it, up to $250,000 of that profit (if you’re a single person) or $500,000 if you’re married and filing jointly is tax free. Now, this is only true if you meet certain requirements with the biggest one being that you have to have lived in the house for a minimum of two years during the preceding five-year period.

If that’s not enough to convince you that there are very significant advantages to owning a home over renting, I will leave you with one last datapoint that you may find of interest.

Renting vs. Owning a Home: Household Net Worth

Using Federal Reserve data as a base, I’ve been able to calculate the median net worth of a household in America who owned their homes versus a household that rents.

• In 2022, the median household wealth of a homeowner household here in America was approximately $330,000.
• The median household wealth for a renter household in this country last year was just $8,000.

As you can see, that’s quite the discrepancy between the two. I think it’s very clear that homeownership for a vast majority of families is how they create most of their wealth.

I hope you found this topic of interest. Of course, if you have any questions or comments please do let me know as I do enjoy hearing from you. Take care and I look forward to talking to you all again next month.

Data combined and calculated by Windermere Economics

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

The following analysis of select counties of the Western Washington real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere Real Estate agent.

Regional Economic Overview

Although the job market in Western Washington continues to grow, the pace has started to slow. The region added over 91,000 new jobs during the past year, but the 12-month growth rate is now below 100,000, a level we have not seen since the start of the post-COVID job recovery. That said, all but three counties have recovered completely from their pandemic job losses and total regional employment is up more than 52,000 jobs. The regional unemployment rate in November was 3.8%, which was marginally above the 3.7% level of a year ago. Many business owners across the country are pondering whether we are likely to enter a recession this year. As a result, it’s very possible that they will start to slow their expansion in anticipation of an economic contraction.

Western Washington Home Sales

❱ In the final quarter of 2022, 12,711 homes sold, representing a drop of 42% from the same period in 2021. Sales were 34.7% lower than in the third quarter of 2022.

❱ Listing activity rose in every market year over year but fell more than 26% compared to the third quarter, which is expected given the time of year.

❱ Home sales fell across the board relative to the fourth quarter of 2021 and the third quarter of 2022.

❱ Pending sales (demand) outpaced listings (supply) by a factor of 1:2. This was down from 1:6 in the third quarter. That ratio has been trending lower for the past year, which suggests that buyers are being more cautious and may be waiting for mortgage rates to drop.

Western Washington Home Prices

❱ Sale prices fell an average of 2% compared to the same period the year prior and were 6.1% lower than in the third quarter of 2022. The average sale price was $702,653.

❱ The median listing price in the fourth quarter of 2022 was 5% lower than in the third quarter. Only Skagit County experienced higher asking prices. Clearly, sellers are starting to be more realistic about the shift in the market.

❱ Even though the region saw aggregate prices fall, prices rose in six counties year over year.

❱ Much will be said about the drop in prices, but I am not overly concerned. Like most of the country, the Western Washington market went through a period of artificially low borrowing costs, which caused home values to soar. But now prices are trending back to more normalized levels, which I believe is a good thing.

Mortgage Rates

Rates rose dramatically in 2022, but I believe that they have now peaked. Mortgage rates are primarily based on the prices and yields of bonds, and while bonds take cues from several places, they are always impacted by inflation and the economy at large. If inflation continues to fall, as I expect it will, rates will continue to drop.

My current forecast is that mortgage rates will trend lower as we move through the year. While this may be good news for home buyers, rates will still be higher than they have become accustomed to. Even as the cost of borrowing falls, home prices in expensive markets such as Western Washington will probably fall a bit more to compensate for rates that will likely hold above 6% until early summer.

Western Washington Days on Market

❱ It took an average of 41 days for homes to sell in the fourth quarter of 2022. This was 17 more days than in the same quarter of 2021, and 16 days more than in the third quarter of 2022.

❱ King County was again the tightest market in Western Washington, with homes taking an average of 31 days to find a buyer.

❱ All counties contained in this report saw the average time on market rise from the same period a year ago.

❱ Year over year, the greatest increase in market time was Snohomish County, where it took an average of 23 more days to find a buyer. Compared to the third quarter of 2022, San Juan County saw average market time rise the most (from 34 to 74 days).

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

Article originally appears on windermere.com