There are many strong reasons to own a home as opposed to renting. However, there are also many good reasons to rent instead of buying. Ultimately, your personal, professional, and financial circumstances are the factors that will break the stalemate of pros and cons.
If you’re deciding whether renting or buying is right for you, let’s take a look at the current real estate climate and whether the timing works in your favor.
What’s More Expensive?
The real estate rollercoaster of the past few years appears to be settling down. It’s still more expensive to buy a home than it was before the pandemic, but it’s also more expensive to rent an apartment or house. So where does that leave you?
Recent studies confirm that paying rent in this real estate climate frequently costs more (over a multi-year period) than paying a mortgage. Find a “Rent Vs. Buy” Calculator online and crunch the numbers for yourself. Over time, you may see that the equity and investment earnings of owning a home quickly make it the better choice.
Shutterstock: Dmitry DemidovichWhat About Interest Rates?
Mortgage rates are constantly changing. However, the current trend reinforces the idea that buying a home is much more advantageous than renting one. Interest rates are quite low – around 5% – meaning that you can be saving hundreds of dollars each month. Imagine how much you’ll be saving if you stay in that home for decades.
Renters might not think that interest rates affect them at all, but rising rental rates across the country say otherwise. The Federal Reserve Bank of Dallas, which uses data from the government’s consumer price index, forecasts that rental price growth will increase from 5.8% (June 2022) to 8.4% by May 2023. That’s an enormous leap in less than one year.
ShutterstockIs Home Equity Really That Valuable?
Rent prices show no sign of decreasing, but neither do home values! In the past year, house prices have risen 13.2%, which bodes well for the equity of homeowners. As long as property values are high, any funds you put into maintaining or improving your home will pay off down the road. More value, more equity!
As we will soon discuss, there are many homeowner expenses that do not build equity. Even so, it’s a better arrangement than the rental game, in which tenants aren’t building any equity off of monthly rent payments.
Shutterstock: William PotterWhat About Down Payments?
Some sources will tell you not to purchase a home if you cannot offer a 20% down payment. Such an old-fashioned perspective seems to ignore the fact that some homebuyers are purchasing with a zero dollar down payment. This is possible if you qualify for certain loan programs and government assistance programs.
Granted, a zero dollar down payment isn’t the best scenario. For one thing, you will have a much higher interest rate to contend with. Plus, there are still large fees associated with buying a home, such as closing costs. Regardless, it proves that the 20% down payment guideline is bogus during an age when most homeowners comfortably put down 6%.
Shutterstock: Monkey Business ImagesUnexpected Costs?
There’s no question that homeowners will have to deal with more unexpected costs than renters. When an appliance breaks down or the roof leaks, renters can call up their landlords and request repairs. Homeowners have to pay out of pocket for these services, which can skyrocket in price depending on the age of the house.
And that’s just the beginning. On top of mortgage payments, homebuyers have to factor in property taxes, house insurance, and utilities. The size of your home will often dictate just how expensive these utility bills can get.
Shutterstock: GorodenkoffWhich Is The Better Investment?
This one’s simple. Home ownership is one of the best investments you can make because your mortgage payments gradually result in a home you can sell. Monthly rent payments, on the other hand, leave renters with no future investment.
If you are living somewhere temporarily because there are financial benefits to be had (say, a contract job), then renting can wind up being a short-term solution. But its monthly payments are still subtracting from your financial endgame.
ShutterstockWhy Rent?
While it makes good fiscal sense to choose home ownership over long-term renting, that doesn’t mean renting is a complete waste of money. Far from it! Renting may not offer any equity or investment, but it allows you to pursue different goals without the burden of staying in one place.
In fact, renting is a far better option if you’re in an unstable relationship or profession. It’s also a great option if you aren’t sure you like the city or town you’re living in. It’s important to consider your travel, career and relationship goals before you make the biggest purchase of your life!
Antonio Guillem / ShutterstockDon’t Rush In
Financial instability may be the best reason to rent. The tantalizing possibility of giving a zero dollar down payment, matched with the higher loan amounts being offered by banks, can encourage people to buy beyond their means.
During the pandemic, many homeowners purchased homes at the high end of their pre-approved loan amount. This demographic is partially represented in a 2022 poll, which states that 69% of Americans consider themselves house poor. Such a sobering statistic is worth mulling over!
Shutterstock: New AfricaAre You Ready?
Most economists agree that it’s smarter to buy a home than rent one, even amidst this unprecedented rise in house prices and inflation. Some experts are just as confident in home value despite the growing concern of a recession, as real estate will be more affordable and less competitive.
Regardless, the decision to rent or buy is an individual choice built on individual circumstances. Until you’re 100% sure you’re ready to buy, it’s wise to rent. If nothing else, renting can afford you the time to build your credit, gather some assets, and fine-tune your future goals. That way, even your monthly rental payments will be a stop-gap investment toward a much loftier one.
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