Being a single mom for so long, being able to buy a house, it
was always something I wanted for my daughter. But it was
always out of the picture. I was not very good with my money. I
was living paycheck to paycheck.
She was very nervous about buying a home and she didn't
think that we could do it.
To buy or not to buy has never been a simple decision.
That won't fit in here. I don't think so.
And this ever changing housing market isn't making it any
easier. With surging mortgage rates, record breaking rents and
home prices, a potential economic downturn and other
lifestyle considerations. There's so much to factor in.
This is an extraordinarily unique market because of the
pandemic. And because there was such a run on housing, so you
have home prices very high, you also have rents very high,
On average across the 50 largest United States metro areas, a
typical renter pays about 40% less in rent than a first time
homeowner. However, that's not the case for everyone. We will
be
paying close to the same amount, but not have any of the
amenities. It just makes more sense to make this move.
Prospective homeowners and investors often travel across
the country and sometimes even the world seeking more
affordable markets. Right now. A few of those places are
Cleveland, Ohio, Pittsburgh, Pennsylvania and Baltimore,
Maryland.
It doesn't matter if the market is gonna crash or not,
something's gonna happen but we're not sure what maybe it's
gonna be back again. Maybe it's not we're gonna keep going doing
I was at work, and I get a phone call from Stephanie, and she
that.
said that they had the evacuate apartment. It didn't register at
first. I still get choked up thinking about it. I just raced
home and the police tape was over. I didn't know where she
was at her and her and the three girls were like just in tears.
I'm sorry. I don't like talking about it.
Leland and Stephanie Jernigan had to move out of their
Cleveland apartment in January 2019. A neighboring apartment
had a fire forcing them to stay with family for a few days and
then a hotel. Just 10 days after Stephanie gave birth to their
daughter, Tatum.
She slept in her car seat the first night because we had
nowhere to put her.
Leland Jernigan always dreamed of purchasing a home of his own.
But that fire put a wrench on his plans.
We had a little over $5,000 saved. We were going to use that
to try to get a place a house of our own. I had to utilize a lot
of that money to find a place and to buy everything else that
we had lost. The house was just totally taken off the table. And
as a man, you don't want that for your wife and your kids like
you want to be able to provide. March 16, 2020 I got a phone
call from my boss like hey, we're closing up.
Meanwhile, Stephanie was on maternity leave and demoted as a
result of the pandemic. Within a few months, Leland found a new
job. While it pays about $20,000 less than his previous job. The
family is finally back on track with their savings. On April 4,
2023. They closed on their first home.
Tatum talks all the time about going to the new house going
into the new house. Is it our time yet? That's what she says.
It's not my turn. It's not your turn. You're right.
It'll be your turn soon. I cannot wait to see her face when
we walk in the door.
After about a decade of record low mortgage rates and record
high home prices. The United States housing market has slowed
down. From January 2022 to January 2023, sales declined by
37%. And while prices increased 1.3% during the same time, those
numbers drastically fluctuated throughout 2022. And while it's
often been said that buying a home is better than renting,
it's not as straightforward right now. In December 2022 in
45 of the 50 largest US metros it was more cost effective to
rent than buy. That's up from 30 markets from the prior year. In
the top 10 metros that favored renting monthly starter
homeownership costs were an average of $1,920 higher than
rents. And the gap is only getting bigger. In December
2022. In the 45, areas favoring renting renters received more
than $900 on average, whereas in 2021 renters received about half
of that.
We saw the 30-year fixed go from less than 3% to over 7% in the
course of just one year that's very dramatic, and that made
that monthly payment more than twice what it was the year
before and unaffordable for a lot of folks. So that's why the
housing market really stuck out in the fall. Interestingly, we
did see it bumped back up in January when the 30-year fixed
pulled back towards 6%. People really rushed in - we saw
pending home sales, which are a measure of signed contracts.
That's people out shopping for homes during the month that
jumped over 8% in January compared with December, and that
was surprising, but it was people saying okay, maybe I've
got a chance to get in.
If we stayed here we will pay $1700 a month we will pay 300 or
As for the five areas in 2022, and 20 areas and 2021 where
buying made more financial sense, families saved about $240
on average in both years. And Cleveland was number one on that
list in 2021. While the city has since flipped to the other side
something for storage. Huge area for my mom a huge bedroom for
according to averages, it's not by much. The Jernigans purchased
us, the girls to have separate bedrooms that are bigger than
this home for $285,000. About $100 per square foot. The
average rate on the 30-year fixed is 6.44% as of April 2023.
The Jernigans locked in 6.625% taking their monthly principal
and interest to about $1,800.
the ones that they have now.
The bottom part is all of your grandma's and the top part is
all of our bedrooms our bedroom is that big from edge to edge.
A huge backyard that Tatum can run around in, a four car
garage.
Markets in the U.S. in which homeownership offers lower
monthly costs include Memphis and Pittsburgh, among others.
Nationally, home prices were higher at the beginning of 2023
than they were at the start of 2022. But that's also constantly
changing. So how does one decide during a time like this? There
are of course pros and cons for each. Let's start with renting.
The pros are that you don't need to worry about repairs and you
can pick up and move anytime. Cons include giving your money
to someone else, building equity on their investment as opposed
to your own. You don't have as much control over how long you
can stay and rent can change at any time, if you're not in a
rent stabilized home. You also have no say in renovations,
construction that I can attest can be extremely loud, and
you're likely limited to how much you can change the space to
your liking. Moving on to buying, pros include having the
ability to do what you want with the space, you're investing your
money in something that will hopefully appreciate, tax
incentives, you could stay as long as you would like, more
financial predictability as long as you have a fixed interest
rate and of course, pride in owning your own home. The cons,
you'll likely be in a smaller space for the same price than if
you were renting if you're buying in an urban area and you
have a lot more financial responsibilities, including
upfront fees such as a down payment and closing costs, not
to mention property taxes, likely a mortgage, and condo and
maintenance fees depending on the type of home you purchased.
The best way to make this decision for yourself is to take
a closer look at your finances.
You don't buy a house based on the price of the house, you buy
it based on the monthly payment. That's going to be principal and
interest and insurance and property taxes. If that
calculation works for you and it's not that much of your
income, perhaps a third of your income, then it's probably a
good bet for you especially if you expect to stay in that home
for more than 10 years. You will build equity in the home over
the long term renting a house is really just throwing money out.
For the Jernigans that calculation looks like this. If
they renewed their lease, their rent would go up to $1,700 per
month. Plus they pay $340 for storage and $50 per month for
renters insurance bringing their monthly expense to $2,090. But
at their new house, their monthly principal and interest
will be $1,792. Plus mortgage insurance will be $125 and
estimated escrow $447, bringing their monthly payment to about
$2,365. If you subtract the $1,000 Leland mother's is
contributing which is $100 cheaper than what she would be
paying in rent, that brings their total monthly expense to
$1,365. This move expanding their space threefold and
allowing them to take care of Leland's mother will be saving
them more than $700 per month.
Most will see their housing wealth grow over time is that 20
years is that 30 years, it depends on how long you want to
be in the home. If you only expect to be in a market for
perhaps five years, it might be better to rent because that's
not a long enough term to see real housing wealth grow. So it
depends on what your trajectory is for living somewhere versus
how much you want to invest.
What makes sense for you and your family is also going to
depend on where you plan on living.
In the first two years of this pandemic we saw a run on what we
call the Sunbelt, that is areas that are in the South. Also
areas like Phoenix and Las Vegas huge sales numbers there a huge
run on housing and home prices jumped dramatically. In those
markets now we're now seeing them pull back just as strongly
as they jumped. And that's because of higher mortgage rates
and lower affordability because it's much more expensive to buy
there. Now, one interesting market though that has just been
off the charts and is still is Miami, we saw tons of people
leaving New York City leaving the northeast, even California
tech workers moving to Miami, and that still hasn't faded.
Michael Azzam is the founder of The Azzam group. He's from
Cleveland, and has been working in real estate for more than a
decade. He quit his job as a registered nurse and has never
looked back.
When I started, it was really at the bottom of where we are, from
a market standpoint, an economic standpoint, and it just our
trajectory is just continuously gone up. And I've seen so much
improvement and development in the city. And we've seen that
trending with out of state investors coming in residents
looking for more affordability.
The pandemic made a significant difference as well, we had never
seen this kind of housing market before. Mortgage rates dropped
dramatically. And we saw more than a dozen record lows on the
30 year fixed rate in just one year.
So people were able to buy more for their money, that is their
monthly payments were lower. And that caused home prices just to
soar faster than really we've ever seen before. As markets
started to price themselves out people look to Cleveland as oh,
hey, I get to work from home, I can be flexible with where I
live, I'm gonna go to a market that I can afford to buy a nice
big house. Years ago,
The Azzam Group saw the advantage of flipping homes in
Cleveland. Over the last
few years, we've averaged a little over 500 transactions a
year back in 2014 and 15. 60 to 70 transactions. We started
growing from there, the same house at $40, $50 and $60,000
are selling now for $150, $160, $170,000. So you know, there's a
So much opportunity, it's brought people to Cleveland,
lot of opportunity.
even from outside the United States.
I'm Dan Issa I moved from Israel to Cleveland for doing real
estate, we do around $200 to $300k a year from flipping
houses.
Ready to go in? Let's rock and roll. Got a lot to do here.
We heard about it from friends, group of investors, then we look
at it more in internet articles, Facebook groups and everything
about investing in Cleveland. It was like one of the cheapest to
purchase the houses and like it's the percentage what you get
back the profit it's very high.
26-year-old Dan Issa moved to Cleveland in 2019. His family
used money from their real estate business and winery in
Israel to start a construction business in Cleveland. Then they
expanded to real estate.
They've taken themselves as a family and said, you know what,
we're going to make sure that we're taking advantage of this
opportunity, flying all the way from another country. They're
here to do some damage in a good way.
How many homes have you flipped?
15 already.
This is their most recent flip. They purchased this home for
$60,000 and put in an additional $60,000. They re-did the floors,
bathrooms, kitchen, windows and even the roof. After being on
the market for less than a week, multiple families were
interested and this home is now under contract for $195,000.
$75,000 in profit. Issa says a rehab typically takes about
three months from the time they purchased the property to when
they're done. That costs about $50,000 on average. In the
beginning of the year, they were looking at about five houses
each week. Their goal by the end of 2023 is to flip 12 houses and
have 10 rental properties. They currently rent out three of
their properties and the fourth they call home. Do you drink
these wines together?
Every day and every night whenever we drink bottle of wine
or any alcohol that we produce.
They bought this three bed three bath in March 2022 for $195,000
and put $150,000 in for renovations. While they spent a
bit more on this property than they do on the homes they flip,
Dan's mother Munira says it came out exactly how they want it.
Her favorite part, the kitchen.
When I make the dishes you see how wonderful you see the street
you see the car you see the grass you see who's coming. We
have open house all the time. We have a lot of friends. They come
and visit us every Sunday we sit like here if you see like more
than 20 people.
We're in love with Cleveland it's awesome. The summertime is
beautiful here. The wintertime is cold and nice. So you have
all the seasons.
And do you know if you wanted to sell this right now how much you
can get?
The after repair value. It's supposed to be around $550 or
$600.
The spring housing market it is historically the busiest time of
the year for housing. And that's because families want to buy
their homes close on them in the summer and move so they don't
disrupt their children and get them into school in the fall. We
are not, however, expecting a busy spring housing market this
year simply because mortgage rates have shot up so far again.
And because housing inventory is still so low, so will it recover
over the summer? Will it come back in the fall? It's possible
if we get more supply on the market, but unfortunately,
sellers are afraid to list in this market. Because they see
that home prices are easing up. They don't want to catch a
falling knife. They see mortgage rates are higher, and they're
just concerned overall that they won't be able to find a house
they can afford once they sell the one they have.
Despite the fact that renting will likely be cheaper than
buying in most areas of the country in 2023, rental
affordability is expected to remain a key issue. Low vacancy
rates, lagging new construction, and demand are expected to drive
rental rates to new highs
Over the long term historically, it's always been better to buy a
home than rent because you're building equity in that house.
Now have they gone down in the past during the Great Recession?
Of course they have. But again, over the long term housing will
grow your wealth. And that's why we see wealth disparities among
those who own homes and those who don't.
The biggest obstacle we're seeing is most consumers don't
know how easy it is to buy. They think that there's so many
challenges that are going to be blocking their path to actually
getting into homeownership.
And what will happen in the future is uncertain.
As of now I don't see mortgage rates coming down significantly
anytime soon. Although forecasts do have them lower by the end of
the year.
Back in 14, 15 and 16 we saw there were pockets of Cleveland
with very blighted homes and distressed homes and a lot of
those same homes now are updated I mean frankly beautiful now,
it's a testament to all the outside investments that have
been coming in. Cleveland Clinic has attracted a lot of
homebuyers. We have resident doctors moving in from out of
state, people coming that are working for Progressive, people
coming in that are working for Sherwin William. Job force has
opened up a lot of growth for our population, but I don't
think we're at the tip of the iceberg here.
Hi. Hi Grandma. Did you ever think when we lived on
Brightwood that 30 years later, we're gonna be in our own home?
No.
I always knew you would own a home. But I did think that I
would be moving in with you.
Market conditions allowing this family to purchase a home will
be life changing in more ways than one. The Jernigans say
their 14-year-old daughter Raelynn still has PTSD from the
2019 fire.
As a dad, you want to fix it and you can't.
Well, it sounds like you are fixing it. Trying to. This
family is achieving a big part of the American Dream, a life
event that in a 2022 survey 74% of respondents ranked as the
highest gauge of prosperity above having a career, children,
and a college degree. Meanwhile, it's a full circle moment for
Leland who grew up in East Cleveland, his family on
government assistance.
I came from a single mother home who struggled to put food on the
table and always wanted better for her children. It was more
criminals and there were police. I told myself that they will not
live in an environment like that. The area that we're moving
to is something that you would see and look at and be like I
want to get there one day.