In 2023, Stay Away from the Rental Trap
Renters must make an imperative decision every year: should they extend their existing lease, sign a new one, or take the plunge and purchase a property? As the New Year approaches, you may be thinking of renting; however, it is essential to comprehend the real costs associated with leasing before diving into your options.
In the past year, both current renters and new renters have seen their rent go up based on information from realtor.com:
“Three out of four renters (74.2%) who have moved in the past 12 months reported seeing their rent increase. The strain from recent rent hikes isn’t exclusive to renters who have recently moved. Nearly two-thirds of renters (63.2%) who have lived in their current rental between 12 and 24 months, and likely renewed their lease, have also reported increases in their rent.”
And if you look back at historical data, that shouldn’t come as a surprise. That’s because, according to the Census, rents have been rising fairly consistently since 1988 (see graph below):
So, if you’re considering renting as an option in 2023, it’s worth weighing whether this trend is likely to continue. The 2023 Housing Forecast from realtor.com expects rents to keep climbing (see graph below):
Rents are expected to rise 6.3% in the coming year, according to the forecast (shown in green). When compared to the blue bars in the graph, it’s clear that the 2023 projection doesn’t call for an increase as drastic as the ones renters have seen over the past two years, but it’s still above the historical average for rent hikes between 2013 and 2019.
If you're planning to renew your lease this year and have yet to take action on it, the cost of rent may increase in comparison.
Homeownership Provides an Alternative to Rising Rents
With these skyrocketing prices, you may want to explore more cost-effective options. If you're searching for a more dependable and secure future, it may be time to invest in homeownership. Enjoy the security of a reliable monthly cost when you own your home—one that's locked in for as long as you have your loan. As Freddie Mac says:
“Monthly rent payments may increase over time, but a fixed-rate mortgage will ensure that you're paying the same amount each month. With a fixed-rate mortgage, your interest rate is locked in for the life of loan. Steady payments allow you to budget wisely and make plans for the future.”
If you are planning to relocate this year, it would be beneficial for you to secure a fixed-rate mortgage that will keep your housing costs constant over the life of your loan. You’ll avoid wondering if you’ll need to adjust your budget to account for annual increases, like you would if you left your housing payment up to your landlord and their renewal cycle.
Homeowners also enjoy the added benefit of home equity, which has grown substantially. In fact, the latest Homeowner Equity Insight report from CoreLogic shows the average homeowner gained $34,300 in equity over the last 12 months. As a renter, your rent payment only covers the cost of your dwelling. When you pay your mortgage on a house, you grow your wealth through the forced savings that are your home equity.