If you are contemplating whether to rent or buy a home this year, here's something to consider. Rental affordability has been a persistent issue over the years, as rents tend to increase gradually with time. According to Census data, rental rates have shown a consistent upward trend since 1988.
The most recent rental report from Realtor.com reveals that rent prices are still on the rise today, although the rate of increase is slower than what was observed during the peak 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).”
Given the significantly elevated rental prices compared to the pre-pandemic years, homeownership could be a more viable choice, particularly if the ongoing trend of rising rents persists in the long run. On the other hand, individuals with a fixed-rate mortgage can secure a steady monthly payment for the entire loan term, typically ranging from 15 to 30 years.
Homeownership Could Be More Affordable if You Need More Space
Utilizing nationwide statistics on median rental payments from Realtor.com and median mortgage payments from the National Association of REALTORS (NAR), the following chart highlights a comparison between renting and owning. As per the chart, if you require two or more bedrooms, owning a home can often be more economical than renting.
In case you are seeking a residence that can offer ample space to fit in two or more bedrooms for your family, or provide additional room to store your possessions or indulge in your hobbies, it might be worth considering the option of owning a home.
Homeownership Allows You To Start Building Equity
Apart from safeguarding you against escalating rents and being a cost-effective alternative when you require more room, homeownership offers the opportunity to accumulate equity, leading to an increase in your net worth.
Over the years, home values typically appreciate, and as you gradually repay your mortgage, you accumulate equity. This equity can prove beneficial in the future by facilitating a move to an even larger residence. According to Zonda, millennial homeowners consider building equity as the primary motivation for buying a home, rather than paying someone else's mortgage.
Bottom Line
If you are weighing the options between renting and buying a home, it would be advisable to consult a reliable real estate agent to assess your alternatives. Given the increasing rental rates, purchasing a home might be a more sensible route to fulfilling your homeownership aspirations.
