How do you demystify the current market – especially the panic over rising mortgage rates and the speculation on whether housing prices will go down – so your clients and prospects can see the landscape clearly and make informed decisions? 

While there’s plenty to talk about and many voices weighing in,  it’s more important than ever for real estate agents to know how to educate their clients on the differences between home ownership and renting. 

Cost of renting vs. owning

Talking points are one thing; if you have authoritative visuals to back them up, buyers are more likely to take your advice seriously. 

“Redfin Monthly Rental Market Data,” from Redfin Data Center, compares the current average monthly rent to the average mortgage. 

redfin-chart-rent-vs-mortgage

While the average monthly mortgage has increased, the average rent payment is still over $200 more. And that doesn’t take into account other expenses renters face, such as application fees, security deposits, and pet deposits.  

Rising rents and impact on long-term wealth

Rents have been rising across the country, with a steeper rise in some states than others. 

In Oregon, for example, the average rent for a one-bedroom apartment rose by 45.91% in one year, going from $1,370 in May 2020 to $2,000 in May 2021. Florida rents went up 42.03% – from $1,371 to $1,948. Rents in Long Beach, CA, went up by 62%, while Austin, TX, saw a rise of 121.2%. 

It gets worse. 

Across the country, bidding wars are driving up the cost of rent, with renters offering more than the asking rate to gain an advantage over other prospective tenants. 

@byronlazine Rents are up 15%+ in the last year and now bidding wars to find a rental are common across the country (per @wsj ♬ original sound - Byron Lazine

What really hurts in all this? Not a dollar of those rent payments and over-ask bids goes toward building wealth for the renter. 

What are renters missing?

Even if average rent were no more than the average mortgage, renters would still be missing out on the opportunity to build their own equity and household wealth rather than someone else’s. 

Agents discussing these numbers with renters who are willing, ready, and financially able to buy a home need to drive home the advantages of doing so. 

Household wealth for homeowners vs. renters

Homeowners, on average, have 75 times the net worth of renters, according to U.S. Census data shared in a recent presentation by Divvy founder Adena Hefets.

And a recent iPropertyManagement article showed the median household wealth among renters being $6,270 – compared to $254,900 for homeowners. 

Though the factor of multiplication between the two figures can vary, a few things remain constant: 

  • Homeowners get to live in the property they’ve invested in;
  • Every mortgage payment adds to their equity and builds wealth;
  • That wealth is saved for them until they use it. 

Why does net worth even matter?

It’s important to distinguish between prospects who are financially able to buy a home from those who would like to (someday) but are not yet in a position to do so. 

Many of those in the second group aren’t holding off out of fear but because they’ve assessed their situation and decided to prioritize other things – like paying off debt and rebuilding their credit or finding ways to increase their monthly income. 

Some in that group may even be thinking, You keep talking about net worth, but I don’t have the luxury of worrying about that right now. And isn’t that a non-issue for most people not in the top 1%?”

But net worth is even more of an issue when you have less of it. 

To explain why, let’s look at all the real-life things impacted by a low net worth or by three-to-four-figure household wealth: 

  • Ability to survive a job loss (without becoming homeless)
  • Ability to respond to emergency expenses (medical bills, car repair, etc.) 
  • Ability to retire with enough to maintain a comfortable lifestyle
  • Ability to pursue personal interests and support meaningful causes
  • Ability to prepare for or recover from a natural or economic disaster 

That’s apart from things like financing your kids’ education or helping with the cost of a wedding, new birth, or funeral. Life is expensive. 

Homeownership provides an asset that builds household wealth into a six-digit figure (and beyond). It also allows homeowners to borrow against it to finance major life events if needed. 

How to communicate this info with clients

If you’re talking to a prospective client about all this, how do you handle objections about rising mortgage rates – and the consequent increase in monthly mortgage payments?

For starters, you can do what Byron Lazine suggested in his conversation with Tomo founder Greg Schwartz: take that extra $200 a month (give or take) and ask what people are already spending that amount on each month. 

What amount could they divert to building their own equity – instead of someone else’s? 

For most of us, there’s always something we’re used to spending money on each month that we could divert to more important goals. 

And those small-ticket spending habits add up. 

Paint a picture

Ask your prospects where they want to be in the next three years – still renting or living in a home and building equity. And show them the numbers: 

  • How much they’ll spend over the next three years on rent
  • How much equity they could build over the same time period
  • How a home equity loan could help them pay off debt or finance other goals more quickly (with a lower interest rate)

Make it as real for them as possible. Paint a picture, so they can see themselves as homeowners even before they tell you they’re ready. 

It’s not about minimizing the cost. It’s about focusing on the right things – for them. 

When creating scripts to jumpstart conversations with your prospects, keep these things in mind. 

The more meaningful the differences between homeownership and renting are to you, the more compelling you can make them for others.