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Is It Better To Rent Than Buy a Home Right Now?
Wednesday, April 17, 2024
Is It Better To Rent Than Buy a Home Right Now?
Wednesday, April 17, 2024
You may have seen reports in the news recently saying it’s more affordable to rent right now than it is to buy a home. And while that may be true in some markets if you just look at typical monthly payments, there’s one thing that the numbers aren’t factoring in: and that’s home equity. Here’s a look at how big of an impact equity can have and why it’s worth considering as you make your decision.
You may have seen reports in the news recently saying it’s more affordable to rent right now than it is to buy a home. And while that may be true in some markets if you just look at typical monthly payments, there’s one thing that the numbers aren’t factoring in: and that’s home equity. Here’s a look at how big of an impact equity can have and why it’s worth considering as you make your decision.
What the Headlines Are Based on
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, especially if you’re not looking for a lot of space, it can be more affordable on a monthly basis to rent:
But if you’re looking for something with 2 bedrooms, the gap between the median rent and the median mortgage payment starts to shrink to a difference that may be more doable. The median monthly mortgage payment is $2,040. The median monthly rent for 2 bedrooms is $1,889. That’s a difference of about $151 a month. But here’s what happens when you factor in equity too.
How Equity Changes the Game
If you rent, your monthly rental payments only go toward covering your housing costs and your landlord’s expenses. So other than saving a bit more per month and maybe getting your rental deposit back when you move, the money you spent on housing each month is gone – forever.
When you buy, your monthly mortgage payment pays for your shelter, but it also acts as an investment. That investment grows in the form of equity as you make your mortgage payment each month and chip away at what you owe on your home loan. Your equity gets an extra boost as home values climb – which they typically do.
To give you a clearer idea of how equity can really stack up fast, here’s some data for you. Each quarter, Fannie Mae and Pulsenomics publish the results of the Home Price Expectations Survey (HPES). It asks more than 100 economists, real estate professionals, and investment and market strategists what they think will happen with home prices. In the latest release, those experts say home prices are going to keep going up over the next five years.
Here's an example of how equity builds based on the projections from the HPES (see graph below):
Imagine you purchased a home for $400,000 at the start of this year. Chances are, since you bought, you plan to stay put for a while. Based on the HPES projections, if you live there for 5 years, you could end up gaining over $83,000 in household wealth as your home grows in value.
Here’s how that stacks up compared to renting, using the overall median rent from above:
While you may save a bit on your monthly payments if you rent right now, you’ll also miss out on gaining equity.
So, what’s the big takeaway? Whether it makes more sense to rent or buy is going to vary based on your personal finances. It’s not a good idea to buy if the numbers truly don’t work for you. But, if you’re ready and able, adding equity as the final puzzle piece may be enough to help you realize buying is a better move in the long run.
Bottom Line
If you’re thinking about whether you should wait for rates to come down before you move, don’t forget to factor in buyer demand. Once rates decline, competition will go up even more. If you want to get ahead of that and sell now, let’s chat.
Hi, I Am Kim Dorman
Long & Foster Realtor
As your real estate agent, I hope you’ll think of me as your trusted advisor, your practiced negotiator, your skilled house-hunter and your neighborhood expert. Whether you’re buying, selling, renting or just looking, I’ll diligently work for you every step of the way. My goal is to deliver a joyful, seamless experience at every phase of the home buying or selling journey.
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Kim Dorman, with Long and Foster Real Estate, went above and beyond in handling the recent sale of our home! She gave us lots of information on all the steps involved in selling, as well as excellent recommendations for contractors for any needed repairs. She was very knowledgeable about all the steps involved and very willing to explain the whole process. We would definitely recommend her to anyone looking to buy or sell their home!
DONNA
We called Kim, once again, to help us find our home upon our return to the area. She was quickly responsive and strove to understand all of our desires for a new home, and advised us in all aspects of the search. She helped us to quickly find a home we love, answered or sought answers to any questions we came up with, and walked us through the entire process from the search to the closing. Kim is a brilliant advocate and is vastly experienced. We highly recommend her for any real estate need.
JACK
Being a first time home buyer, my boyfriend and I were a little nervous about the home-buying process. Kim right away made us feel at ease and was able to speak to us first about the process before going all in. She discussed the housing market and what we can expect.... We are very happy with Kim and would strongly recommend using her for buying or selling your home.
RACHEL
Kim has truly been a lifesaver for our family - we had a cross-country move in a very tight timeframe (during COVID-19, no less) and she helped us find a home that met our needs even with all of that working against us. She was very professional, extremely responsive, and thorough to ensure we found the right place for us. We really enjoyed working with her on a personal level, too! She is fantastic!
ALYCE
Kim is amazing! She is easy going and full of energy and helped us find our perfect home. She then made dealing with a very difficult seller seem effortless. I would definitely (and have) recommend her to family and friends. Don't hesitate to have Kim Dorman help you with buying or selling!
MATT
Kim puts her clients first and is willing to go the extra mile to assist them. She is very knowledgeable and very thorough in answering questions and providing information we weren't aware that we needed. She is very reliable and accessible, both by phone or email. We have already recommended her to others and will happily do so again. We will gladly work with her again when it comes time to sell our house.
NANCY
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