The Smart Choice: Why Buying a Home Outweighs Renting in Today's Market
If you're contemplating whether to continue renting or buy a home this year, it's essential to consider rental affordability and how it may impact your long-term financial goals. Rental affordability has been a challenge for many individuals, primarily due to the steady increase in rents over the years. Data from the Census Bureau indicates that rents have been on an upward trajectory since 1988.
The trend of rising rents can present several concerns for renters. First, as rents increase over time, it may become more challenging to allocate a significant portion of your income towards housing costs, potentially leaving you with less disposable income for other expenses or savings. Additionally, rising rents may limit your ability to build wealth through homeownership, as renting does not offer the same potential for building equity over time.
On the other hand, buying a home can offer several financial benefits, including the opportunity to build equity and take advantage of potential property value appreciation. While it's true that homeownership comes with upfront costs and responsibilities, such as property taxes, insurance, and maintenance, it can provide stability and the potential for long-term financial gains.
When deciding between renting and buying, it's essential to consider your specific financial situation, lifestyle preferences, and long-term goals. Owning a home allows you to build wealth through equity, and it may offer more stability and control over your living space. However, renting can provide flexibility and may be more suitable for those who value mobility or have uncertain living situations.
To make an informed decision, consider working with a real estate professional who can help you assess the local housing market, provide insights into rent vs. buy calculations, and guide you through the process of homeownership. By understanding your options and taking into account your unique circumstances, you can determine whether renting or buying is the best path for you in the current housing market.
And, data from the latest rental report from Realtor.com shows rents continue to grow today, even though it’s at a slower pace than we saw at the height of the pandemic:
“In March 2023, the U.S. rental market experienced single-digit growth for the eighth month in a row . . . The median asking rent was $1,732, up by $15 from last month and down by $32 from the peak but is still $354 (25.7%) higher than the same time in 2019 (pre-pandemic).”
With rents much higher now than they were in more normal, pre-pandemic years, owning your home may be a better option, especially if the long-term trend of rents increasing each year continues. In contrast, homeowners with a fixed-rate mortgage can lock in a monthly mortgage payment for the duration of their loan (typically 15-30 years).
Owning a Home Could Be More Affordable if You Need More Space
The graph below uses national data on the median rental payment from Realtor.com and median mortgage payment from the National Association of Realtors (NAR) to compare the two options. As the graph shows, depending on how much space you need, it’s typically more affordable to own than to rent if you need two or more bedrooms:
So, if you’re looking to live somewhere where you have two or more bedrooms to accommodate your household, give you more breathing room to spread out your belongings, or dedicate the extra space to practice your hobbies, it might make sense to consider homeownership.
Homeownership Allows You To Start Building Equity
In addition to shielding you from rising rents and being more affordable when you need more space, owning your home also allows you to start building your own equity, which in turn grows your net worth.
And, as home values typically rise over time and you pay off your mortgage, you build equity. That equity can set you up for success later on because you can use it to help fuel a move to an even bigger space down the line. That’s why, according to Zonda, the top reason millennial homeowners bought their home over the past year was to build their own equity instead of someone else’s.
If you’re trying to decide whether to buy a home or continue renting, let’s connect to explore your options. With rents rising, it may make more sense to pursue your dream of homeownership.