The Advantage to Buying, Even in this Aggressive Market: One Buyer’s Scenario

I would like present a scenario I recently heard about for a 1st-time Homebuyer (aka a Renter). Fast-rising rents have many people seeking the protection that a consistent, fixed mortgage payment provides. Through this narrative I hope to demonstrate the advantage to buying a home, even in an unprecedented Seller’s Market like the one we are in now.

A Buyer is living in an apartment, paying $2,050 a month in rent. They are ready to buy a townhome. They have been fully approved by their lender for $325,000 but have decided to search under their maximum approved amount so they have some room to bid up, as is a common tactic in the current market. A desirable townhome was listed for sale for $250K; it is more spacious than the Buyer’s current apartment, and has many features the Buyer values. The Buyer put in an offer at $260K with an Escalation Clause, capping it at $2K higher than highest competing offer.

Putting an Escalation Clause in an offer may be one way to place your bid above others on a given home.

The Seller received multiple offers with the highest offer at $298K, $38K above the Buyer’s offer. The Seller’s Agent contacted the Buyer’s Agent and gave the Buyer the opportunity to invoke their Escalation Clause and win the contract. The Buyer’s new offer with Escalation Clause would be $300K

The Buyer rejected the opportunity, refusing to pay $50K over list price, which they considered an excessive amount for the home, even though the Buyer aspires to own a townhome just like this one. (List price is actually irrelevant — how was that price set? Was it set below market value, to bring in more prospective buyers? Over market value, by an aggressive and inexperienced Seller?)  Let’s examine the advantage of buying that home, even at what seems like an excessive price for that property. We will use a five-year period to examine the differences in Renting vs. Buying, as the Buyer wants to “wait it out”.

In this case, the Buyer’s monthly mortgage payment (PITI — Principal, Interest, Taxes, Insurance) and HOA (Homeowners Association) payment for the home would equal the same amount they were currently paying rent for their apartment: $2,050. One of the strongest advantages to buying is related to that monthly payment: With a mortgage, that number never changes. Rent payment will increase yearly, at an average of 5%. Realistically, due to the current increased demand of rental properties, rents are increasing quite a bit more than 5% per year. However, using the modest 5% increase in our model, a rent today at $2,050 will go up approximately $100 per month every year. After five years, that rent is $566 per month higher — $2,616, while a mortgage payment remains at $2,050.

We know that rent rates increase an average of 5% year over year. We also know that home values increase year over year, around the same rate. Following this estimate, the value of a $300,000 home after five years is $382,884.

Including the payments made on principal ($26,684), and market value increases (at a modest 5% Y-O-Y) the Buyer will have $109,568 in equity in their home after five years.

The Renter will not have gained any equity, but has likely been building the equity and wealth of their landlord. Over five years, the Renter will have paid $142,764 to their landlord. Total monthly mortgage payments and HOA equal $123,000. Even after accounting for $7,000 to cover closing costs, the Buyer still comes out thousands ahead of the Renter as far as monthly payments go.

There are definitely costs associated with homeownership that are not part of a renter’s budget: the initial downpayment, home repairs, HOA special assessments, taxes, and insurance. Home ownership can also take up more personal time than renting, as there is not landlord to manage repairs and maintenance.

Since they declined the opportunity to go Under Contract on the townhome, the Buyer is still searching the market. With multiple offers on almost every property and very few days on the market, it remains challenging to win a contract. However, interest rates have risen over 0.5% since they put their offer in and declined to invoke their Escalation Clause and win the contract (winning a contract is no easy feat).

Due to the increase in interest rates, the Buyer’s dollar will not go as far as it did in months before. For every 1% interest rates increase, buying power decreases by 10% of purchase price. A higher interest rate lowers the amount paid on the monthly principal included in that $2,050 purchase price. The Buyer cannot afford the same priced home that they could a few months before. The Buyer will also end up spending more money on interest over the life of the loan. Home prices are rising steadily month-over-month as well, so a townhome that sells for $300,000 this month may sell for $315,000 or more in just a couple of months.

No one wants to buy at the top of the market, and no one wants to pay top dollar. The Buyer’s reservations are understandable. However, our current market is the result of supply and demand. The increase in price appreciation is the direct result of low inventory and high demand. New home construction was low even before the pandemic began, and Millennials and Gen Zs are now in the active buyer group, increasing the number of buyers searching for homes. There are no signs of the market slowing down, and if readers are worried about a crash similar to 2008, this is not that market. That market held high inventory, high demand, and very low financial requirements to acquire a mortgage, with buyers even leaving the closing table with some extra cash, such as with an unsettling 125% loan. That scenario is not happening today, mainly due to more stringent regulations. 

Are home values too high? Are they inflated? Below is a chart that shows a house price index for the Atlanta/Sandy Springs/Alpharetta, Georgia area, from 1995-2022 [fred.stlouisfed.org]. Recessions are shaded in gray. Notice that during and after each recession, home prices continued in their trajectory upwards, except 2008 (The Great Recession), where conditions were very different from today. The housing market has adjusted — recovered — over the last decade, and home prices are back on a similar trajectory as they were before 2008. And apart from The Great Recession, most Buyers always paid “top dollar” for their homes because home values have consistently been on the rise.

As far as protecting yourself against inflation —  what better way to protect yourself than to lock in a mortgage payment and keep your largest monthly cost the same year after year, all the while growing your equity in an investment?  Consider spending $142,764 in rent over 5 years, resulting in $0 equity, or spending $123,000 over 5 years on mortgage payments, ending up with $109,568 in equity . . . It is a good time to buy a home.


I would like to extend sincere thanks to Marc Garfinkel, my colleague and my preferred lender, who works with Prosperity Home Mortgage, part of our Family of Services at Harry Norman, Realtors. Marc initially shared this scenario with me and then encouraged me when I decided to present it here. He enthusiastically assisted me as I worked to create all these charts and figures. I love working with Marc, and my Buyers always benefit from Marc’s down-to-earth approach. Marc provides numerous options to Buyers and he gives clarity to all of us in every situation: he strives to help prospective Buyers think outside the box. He makes himself available to clients after business hours; the demand for this is unavoidable in the climate of this challenging market. (Shout out to Marc for writing up a “Fully Underwritten Approval” letter for my clients’ offer on Thanksgiving Day — we won that contract!)


Gone Thrifting!

[For “1969 Poodle Wall Plaque” giveaway, see end of post and leave a comment!]

Do you ever go “thrifting”? The phrase is trending, but the act itself has been around for decades. As a teenager (early 1980s), I loved heading to Little 5 Points, in Atlanta, to visit the vintage clothes stores (Stefan’s, Junkman’s Daughter) and then head over to the AMVETS thrift store on Moreland Avenue, for hours of perusing. I scored all kinds of wonderful, magical things in those shops…clothes, of course, but also jewelry (they don’t make ‘em like they used to!!) shoes, purses, scarves, gloves, and at AMVETS they sold household items as well — I got some fantastic blown glass vases and some glasses, framed art, all the fun stuff! I still have a lot of the things I bought. Some are put away in boxes, but some are out, about my home, and I enjoy them every day! 

Currently I frequent just two thrift shops in the Atlanta area, City Thrift in Lilburn, GA and the Goodwill near my home in Peachtree Corners.  I have scored some SERIOUS loot at these places! I want to share some of the amazing finds I’ve had recently, and how I’ve upcycled some of the items. I also want to note how appreciative I am that people are willing to take the time to donate items they no longer need.

Visiting a thrift shop can be overwhelming, so I have a few tips to share for folks who are interested.

Tip 1 — Visit often, keep it short.

I found that if I visit the shop often, say — once a week, and stay for about 30 minutes, I tend to be able to spot great stuff easily. Some items will stay on the shelves for weeks, so if you visit regularly you will stop noticing the things that don’t interest you and be able to recognize the new inventory. Taking in everything on the shelves or racks can be overwhelming. Thirty minutes is about the maximum time I can focus while thrifting, too.

Tip 2 — Focus on one or two departments per trip.

This is related to my first tip: One thrifting trip might be a visit down all the “home goods” aisles — kitchen items, home decor, small appliances, and outdoor decor such as flower pots and garden items. In another visit, focus on shoes, handbags, belts, hats/scarves, and jewelry. Or focus on looking at just jackets and sweaters. My brain gets foggy when I try to take on much more than that. I do admit, I always head straight to the small appliances, though, every single visit. I am obsessed with finding espresso machines — I’ve found three so far (gifted them to two of my sons)!

Tip 3 — Fuel yourself!

Make sure you aren’t hungry, thirsty, or in need of a bathroom visit. Sorta ruins the fun otherwise…

Tip 4 — Keep your eye out for the unusual, and keep an open mind!

Most everything is cheap in a thrift store. If something really catches my eye, I will buy it even if I don’t want to keep it “forever”. As my sister-in-law once said, “Think of it as a rental program! Buy it, enjoy it a while, then re-donate it!” That actually makes a lot of sense to me. I’ve always been of the mindset that, when I buy something, I’m going to always have it, and I’d better make the best use of what I have. I do that to a degree, but thrift shop items are low cost, and it can be fun to buy something a little outside my comfort zone or my taste, and get creative with it! Upcyling (refashioning something thought to be useless into something of greater value) can be delightful and rewarding, too!

Tip 5 — Prepare for AMAZING finds!

Read on to see the fantastical stuff I’ve found while thrifting!


This Italian-made espresso machine retails for $200+ and it was new, in-box when I spotted it at City Thrift! My BEST buy ever!!

Unique Barware

George Briard Mid-Century cocktail glasses, on eBay for $50+, and have real gold detail. Festive at the holidays!
Another set of fun holiday glassware!

More kitchen and housewares

This German dessert set looked as if it was never used! It was one of my pricier purchases, $50. It’s so much fun to use in when friends are over. I love the curve of the coffee pot, and the sassy style of the cream and sugar set!
Some 99-cent items, and how I use them.
These square vases caught my teen’s eye. He used them to create a vignette of succulent plants for his nightstand.
This wicker trunk is from Bombay Company. It matches my decor perfectly!
I found these frames on different visits at City Thrift. I like to look for unusual shaped frames, and especially tiny frames! These are pics of me with each of my sons:)

Fun Apparel


Unicorn Thrifting Find — A 3-D Printer

This 3-D Printer had just been rolled out onto the floor when my son and I walked in to Goodwill, in late 2019. We already had a 3-D printer but this one had additional features and was half retail price (it came with original receipt from Amazon!). It took the guys a little work to get it going, but now they use it for most of their 3-D projects.

Upcycling

I love these medallions, but decided to upcyle them to fit with my bedroom decor. I do love using the chalk paint!

This mirror was on its way to the thrift store from my dad’s garage. The frame is plastic, so I decided to try chalk paint on it!
In its finished space, it looks like a fine wood-carved frame! I love it!


Do you enjoy thrifting? Have you had fun and success, upcyling? I’d love to read about your experiences. Please share in the comments!

***If you’d like to enter my Thrifted Giveaway, (randomly chosen 4/30/21) to become the lucky owner of this adorable pair of 1969 Miller Studios Poodle Wall Plaques, please leave a comment below!***

These plaques measure approximately 6″ x 9″ and are painted plaster, 1969/1970 Miller Studios originals. Similar here!