By BECKY GILLETTE
It probably comes as no great surprise to most people who have both owned and rented a home in Mississippi that buying is cheaper than renting. A national GoBankingRates survey that used estimated rental and mortgage rates on Zillow found that average rents in Mississippi were $1,039 compared with monthly mortgage payments averaging $886. That made it about $153 more per month to rent than to buy.
“That same survey stated it cost less to own than rent in all but 11 states, so I think that’s pretty significant,” said 2018 Mississippi Realtors President Karen Glass, managing broker, Coldwell Banker Alfonso Realty, Gulfport.
“We’re benefiting from historically low mortgage interest rates making monthly payments lower than rent payments. Plus, buying a home is not just a financial decision. People take pride in having their own living space that they can renovate, decorate and landscape to their personal tastes. Rentals don’t normally allow the renter to make any changes to the property.”
Another important consideration, Glass said, is that rental payments don’t build equity and a renter can end up paying more than purchasing the property.
Glass recently attended a National Association of Realtors convention in Chicago and said she learned some interesting statistics from the recently published 2017 Profile of Homebuyers and Sellers, including the fact that first-time homebuyers made up 34 percent of all homebuyers this year.
“This is why we think the First-Time Homebuyers Bill will be successful and of great benefit to many who don’t have money for a down payment or closing costs,” she said.
Glass said the bill allows residents of Mississippi who have never owned or purchased a home to deduct up to $2,500 from their state adjusted gross income annually by establishing a designated first-time home buyer savings account. Couples can deduct up to $5,000. Taxpayers can begin taking the deductions in the 2018 tax year.
Mississippi Realtors’ research estimates the program will enable nearly 7,600 new first-time buyers to enter the market over the next five years. The demand for homes is expected to result in about 379 new homes being built in the state.
Andrea Inman Detrick, broker, The Real Estate Firm, Oxford, said they are definitely seeing interest in the first-time home buyer savings account.
“Of course, the first step is the education process to let people know about it,” said Detrick, who is also a Mississippi Realtor Institute instructor. “The savings account can be opened now, but the tax deductions may be taken starting in 2018. Of course, you can save as much as you want. It will help anyone become a first-time homebuyer because this creates a vehicle to prepare for purchasing a home.”
Detrick said she personally thinks it would be great to start one of these accounts for children.
“Even though there won’t be a tax advantage to it now, it would be a way to give a gift that will make a difference when they prepare to purchase their first home,” she said.
Another factor in the mix when considering whether to rent or buy is proposed changes in federal tax law which would cap home mortgage interest deductions. If approved, it would have had little impact on first-time home buying in Mississippi, said Stephanie Prisock Nix, a broker associate with Your Central MS Connection, RE/MAX Connection, Flowood.
“The impact of this deduction, and the proposed decreases, would have a greater impact in the higher end home market than in the entry level market,” Nix said.
But she said overall changes in the tax code could have an impact if they reduce refunds.
“Next spring, I would expect to see buyers waiting until they file tax returns before making a buying decision, as many first-time buyers in our marketplace rely on their refund to apply to their down payment or closing costs,” she said.
“Most first-time buyers who contact me have a primary concern of a payment that is lower than their monthly rent, and for the opportunity to build equity rather than just paying rent. Unfortunately, many of the would-be buyers are saddled with student debt payments along with other debts and credit issues that serve as roadblocks to homeownership. The proposed tax reform would eliminate the deduction for student loan interest, yet another burden for these prospective homeowners as it would reduce their available funds for purchasing a home.”
Nix said inventory levels for entry level housing are already low and the adjustment to the capital gains deduction may cause more current homeowners to delay moves that would have added their property to available inventory for buyers to choose from.
“In years past, lower inventory levels led to increased sales prices, driving up property values,” Nix said. “If the tax law changes push more buyers out of the market, then we may see a decrease in values, as sellers reduce their prices, or increase incentives to attract more buyers. This, of course, leaves those sellers with less equity in their pocket for their next purchase, effectively impacting values and inventory at all levels.”
Nix said there has been a rebound in the housing market and the national economy over the past several years. But she fears the proposed tax changes, if passed, could bring a slowdown back to the housing market, and therefore the overall economy as consumers watch and wait to see how it will impact them before making a move.