Buying a Home May Make More Financial Sense Than Renting One
Consider this if rising home prices make you question if it's better to rent or buy a property in today's real estate market. It's not simply that house prices have increased over the last several years; rental rates have also increased dramatically. As a recent article from realtor.com says:
“The median rent across the 50 largest US metropolitan areas reached $1,876 in June, a new record level for Realtor.com data for the 16th consecutive month.”
If you're thinking about purchasing a home, the prices will continue to rise no matter what. That implies your housing options are going to be impacted one way or another. There are, however, a few key distinctions that might make house buying more appealing for you.
If You Need More Space, Buying a Home May Be More Affordable
What you may not realize is that, according to the latest data from realtor.com and the National Association of Realtors (NAR), Depending on how many bedrooms you require, purchasing a home rather than renting it may be less expensive. The graph below compares the median rental payment and median mortgage across the country to show why.
The graph below shows that if you require two or more bedrooms, buying a house may be less expensive than renting. While this does not account for the interest deduction or other financial benefits that come with owning a home, it does illustrate that based on national averages, purchasing rather than renting for that unit size might be more affordable. So, if one of your motives for moving is a desire for more space, this might be the motivational push you've been looking for.
Homeownership Also Provides Stability and a Chance To Grow Your Wealth
Aside from being more cost-effective based on the number of bedrooms required, buying offers two further significant advantages: financial stability and equity.
When you buy a home, you lock in your monthly payment when you get a fixed-rate mortgage. And that's especially crucial in today's inflationary economy. Inflation causes costs to rise across the board, including gasoline, groceries, and other items. Locking in your housing payment, which is most likely your largest monthly expenditure, can help you avoid future price hikes by providing greater long-term stability. Renting doesn’t provide that same predictability. A recent article from CNET explains it like this:
“...if you buy a house and secure a fixed-rate mortgage, that means that no matter how much prices or interest rates go up, your fixed payment will stay the same every month. That's an advantage over renting since there's a good chance your landlord will raise your rent to counter inflationary pressures.”
Not to mention, when you invest, you may increase your net worth by building equity. It works like this: Your equity rises as your home loan is paid down and housing values appreciate over time. And if you decide later on that you want a larger house, the higher equity in your present property can help you pay for it. Again, the CNET article mentioned above helps explain:
“Homeownership is still considered one of the most reliable ways to build wealth. When you make monthly mortgage payments, you're building equity in your home that you can tap into later on. When you rent, you aren't investing in your financial future the same way you are when you're paying off a mortgage.”
With home equity and a shield against inflation on the line, it may make more sense to buy a home if you’re able to. If you’re trying to decide whether to keep renting or buy a home, connect with The Perreault Group to explore your options.