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Renting vs. Buying a Home in 2023: Understanding Costs and Benefits

Renting vs. Buying a Home in 2023: Understanding Costs and Benefits

Are you torn between continuing to rent or taking the leap into homeownership this year? If so, there are some critical factors you should consider. For many years, rental affordability has posed a significant challenge as rents have historically tended to rise over time. Census data evidences a steady climb in rental rates since 1988.

Moreover, the most recent rental report from Realtor.com confirms that rent prices continue to increase, albeit at a slower rate than we witnessed during the pandemic peak:

"Single-digit growth has characterized the U.S. rental market for the eighth consecutive month as of March 2023. The median asking rent sat at $1,732, a $15 increase from the previous month. Although it has dropped $32 from its peak, it remains significantly higher, by 25.7% or $354, compared to the same period in 2019 (pre-pandemic)."

The substantial increase in rental rates compared to pre-pandemic times suggests that buying a home might be a more sensible option, particularly if rental rates continue their long-term upward trend. Unlike rental prices, homeowners with a fixed-rate mortgage can secure their monthly mortgage payment for their loan term, typically spanning 15-30 years.

If you need more space, owning a home could be more financially prudent. The graph below illustrates a comparison between the national median rental payment, courtesy of Realtor.com, and the median mortgage payment, provided by the National Association of Realtors (NAR). As shown, if you require two or more bedrooms, homeownership is generally more cost-effective:

If your living requirements include a two-bedroom or larger living space to suit your family, to house your possessions comfortably, or to create an area for your hobbies, it might be wise to consider homeownership.

Another compelling reason to own a home is the opportunity to build your personal equity, thereby increasing your net worth. Home values usually rise over time, and as you continue to pay off your mortgage, you build equity. This equity can set you up for future success, enabling you to upgrade to a larger space eventually. In fact, according to Zonda, the primary motivation for millennial homeowners purchasing their home over the past year was to build personal equity rather than contribute to someone else's.

In conclusion, if you're weighing the decision between buying a home and continuing to rent, it's worth discussing your options. With rising rents, it might be the perfect time to follow your homeownership dreams. Let's connect and explore the best course for you.