Renting vs. Buying in the Current Market | Guest Post
The real estate market has long been an indicator and reflection of larger market trends. In 2022, this has shown to be truer than ever. Starting the year with some of the lowest mortgage rates we’ve seen in years, resulting in a seller’s market. Since there were not enough houses to meet the demand as remote work spiked, new homeownership finally began to be driven by Millennials and Gen Zers. When this, combined with a booming jobs market that recovered all the jobs lost during the pandemic, inflation soared.
As we enter Q4, the real estate market we started the year with is not the same one we’re finishing with. The Fed has raised the mortgage rate 4 points in the last 6 months from 3 percent to 7 percent -- which although is still historically low, the rate in which they’re increasing is causing fear in potential homebuyers’ psyche. Meanwhile, rents decreased in September in 69 of the nation’s 100 largest cities and eight additional cities experienced flat month-over-month rent growth. All of these factors have caused the age-old perplexing question: “Should I rent or should I buy?”
Renting vs. buying: What to consider
Whether to rent or buy can start as a personal decision but wider considerations should be explored. The most important question to ask: Where do you want to be long-term? This question has many facets that begins with geography. Do you plan to be in the same city in five years or is it important to be transitory to you? The second part of the equation involves your long-term goals.
There are always going to be reasons to rent especially now with rising home prices and increasing mortgage rates, but rent prices have also grown exponentially. Even though they decreased in many cities in September, rent growth over the course of 2022 continues to outpace pre-pandemic levels. Being able to consider the decision to rent or buy without focusing solely on the monthly payment allows you to think strategically.
Don’t default into renting solely because it feels safer. In fact, locking down a mortgage payment and interest rate could be the safest move to make in an inflationary market. Identifying what your long-term goals are and making decisions based on them, rather than fear, sets you up for a successful future.
Short-term vs. long-term: Which can you afford?
When renting, you are playing the short-term game. As we’ve seen, rental prices have skyrocketed recently. One study found that between 1985 and 2020, rent prices grew 149 percent, while income just grew 35 percent. Rental prices seem driven by the pandemic, but there are many factors causing them to grow exponentially over the years, including homeownership.
Due to rental vacancies, and prices being intertwined with housing availability in the for-sale market, we’ve seen increased pricing for both renting and buying. Including two years of continued rent growth convincing renters to stay in their current lease, rather than exploring a new lease or home ownership. Volatility like this creates risk in the short-term and the long-term since it evades wealth building.
Having the ability to think strategically, long-term investment in real estate will always win. From creating generational wealth to guaranteeing stable monthly payments, homeownership benefits buyers 10:1.
The Fed is talking about raising the rate again into March 2023. They can pull back or steady in the spring, which is when we could see the recession take hold. But with demand increasing and lower interest rates, home prices may go back up. Real estate is the most recession-proof investment you can have.
Homeownership is possible
Making the decision between renting and buying will always be a personal choice, but looking at it from a strategic perspective devoid of fear, allows you to plan long-term based on your personal goals. In a real estate market that seems fraught with uncertainty right now, the answer that provides the most stability is home ownership.
Homeownership is not just a financially lucrative decision, it allows you the opportunity to put down roots. Owning a home gives you a place of your own to raise your children, put in an accessory-dwelling-unit and capitalize on renting it out to supplement your mortgage, and creates options. Renting simply doesn’t hold these same options, which is why buying is the best answer for today and tomorrow
The views, opinions and positions expressed within this guest post are those of the author alone and do not necessarily represent those of the Denver Metro Association of Realtors®. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
If you are interested in submitting a guest post, please contact Sarah at sgoode@dmarealtors.com.
