With home prices rising, current home interest rates, limited housing inventory and inflation, the question whether to rent or buy in this current market is as complicated as ever. There are no easy answers to act on. But what you can do is consider all the various factors involved in such a decision and choose what’s best for you and your unique financial situation.
Pros and Cons of Renting vs. Buying
You can expect to pay more for housing across the nation, no matter if you rent or buy. According to Rent.com, the average rental price in March 2022 increased by 22 percent compared to the same time last year. In comparison, home prices increased 18.8 percent from 2021, according to the 2021 S&P CoreLogic Case-Shiller U.S. National Home Price Index.
With both rent and home prices increasing rapidly, it’s important to act now and start asking yourself how you want to live and where. Do you want the freedom to move frequently after your lease expires or are you ready to settle into one place for a long period, say five years or more? There are pros and cons with each, and your preferences will help you decide.
Renting Provides Flexibility
Renting may be a better choice if you can’t see yourself living in the same place for more than just a few years. Although renting does not build equity, it can save you a considerable amount of money when you consider the cost of buying and then selling a home within a one - three year period. Also, renters save in other ways such as in home maintenance and repairs, which are usually the landlord’s responsibility. And renters have the flexibility to move once their rental agreement expires.
You can compare the affordability of renting vs. buying a house by consulting an online calculator to look at monthly payments. Depending on your location, the cost of renting could be similar to purchasing a home or it could be significantly less. When renting, be sure to consider the terms of your lease before you sign, including how much your rent may increase when your lease expires.
Advantages of Buying
If you find that you’d be perfectly fine living in a home for five years or more, buying a house within your budget makes sense and can provide several advantages. First, owning a mortgage means all of your monthly housing payments will go toward building equity in your property, not your landlord’s. Another advantage is that you’re now able to improve or customize your living spaces, something that is usually prohibited as a renter.
Along with the joy and pride of homeownership, there’s also the real potential of gaining property value over time. Although a rise in interest rates today may slow the growth of housing prices over time, Zillow researchers are predicting 14.9 percent growth in housing costs between March 2022 and March 2023.
Travis Credit Union’s mortgage qualification calculator can help you determine how much you can afford on a home, based on your income, mortgage term and interest rate. Be sure to calculate your payments at various interest rates to see how your purchasing power is impacted by rising interest rates.
Ultimately, the Decision is Personal
In the end, deciding whether to rent or buy is a personal decision that should depend on your financial situation, your plans for the next few years, the housing market and so many other factors. But you don’t have to make that decision alone. Travis Credit Union’s Home Loan Team is available to explain and guide you through the entire homeownership process.
If you’d like to step back and reassess your entire financial situation first, Travis can help there, too. Take our Financial Wellness Assessment to see where you are in your financial journey. Once you know, you’ll be that much closer to your housing goals – whether that’s renting or buying.