First-time homebuyers often debate on whether it’s better to rent or to buy a home. With the current state of the market and the influx of change we’ve seen and will continue to see over the next few years, that discussion has only increased. Before the market shift in March 2022, interest rates were lower than ever, but so was the amount of inventory. As a result, any home that came on the market went under agreement faster than ever before, with buyers competing against each other for virtually every home. Now that interest rates have increased, more homes have come on the market, and the market has slightly cooled, we’re seeing less competition as buyers are beginning to decide if it makes sense to continue their home search or rent for another year. Buy now and get the security of your own space, or rent to try and potentially save a little more. What most aren’t considering is that rent is increasing as is the cost of most consumer goods, so that ‘more time to save’ idea isn’t more than just that… an idea.
The Facts
If you’re deciding between buying or renting, let’s take a look at the numbers. Over the past few years, rent prices have skyrocketed. Since late 2019, the number of people who have to spend more than 30% of their income on apartment rent has increased to 23%, up from 8%. CoreLogic recently released its Single-Family Rent Index, which looks at single-family rent price changes. For example, the company found that rent for higher-middle priced homes (100% to 125% of the regional median) in the US grew an astounding 14.6% in April 2022 compared to April 2021. Miami, FL topped the list with the most significant year-over-year rent change of 40.8% compared to 2021. The Orlando/Kissimmee/Sanford, FL area came in 2nd with a 25.8% year-over-year rent change in April compared to 2021. Boston landed in the #8 spot with a 13.3% increase compared to 2021. For the first time ever, the national median rent rose above $2,000 in June. The chart below from CoreLogic shows the increase in rent in 20 markets around the country.
On top of all this, inflation continues to increase, impacting the rental market. Over the last year, the Consumer Price Index (CPI) increased 8.6% and, with shelter inflation a major piece of overall CPI, it comes as no surprise that the increase was so big. With rising costs overall, landlords are forced to increase rent, which takes more money out of your pocket.
Let’s look at the two major markets we focus on – Massachusetts and Florida, more specifically Boston and Fort Lauderdale. According to apartmentlist.com, rents in Boston alone increased 2.6% compared to last month, with the median rate at $2,025 for a 1-bedroom and $2,111 for a 2-bedroom apartment. In Fort Lauderdale, rent grew 20.4% compared to this time last year, with the entire state of Florida seeing a 22.6% increase over 2021. Rent for a 1 bedroom sits at $1,620 and $1,975 for a two-bedroom.
Why it’s Better to Buy
With that being said, most people argue that while rent prices are going up, so are home prices. And while that is true, it’s important to look at where your money truly goes. When you are paying rent, your entire rent goes directly to the landlord’s pocket, but when you own, this goes directly towards paying off the home. In turn, you are building equity and growing your personal wealth overall. Shant Banosian of Guaranteed Rate recently provided a mortgage market update where he discussed increasing rent prices. He mentioned how in 2021, rent increased 18% compared to 2020 and nothing is more motivating to buyers than increased rent, because purchasing a home means you are only paying the fixed principle and interest. This again leads to you building equity and your overall personal wealth. Think about it this way, if you rent a home at $2,000 a month for 4 years, that equates to $96,000 directly into the landlord’s pocket and their equity, not yours.
On top of this, when you buy, you are in complete control of the home. You can make it your own and renovate/design it any way you’d like. When you make renovations, you’re also potentially increasing the overall value of the home. So, if and when you go to sell again, your overall value is potentially more than when you bought it. On top of it all, when you own your own home, you are not tied down to a lease, nor will you have the potential of having a landlord ask you to move out.
Furthermore, when you buy a home, most of the time your rates and payments are fixed – they won’t change unless you refinance depending on the type of mortgage you secure. When you rent, your landlord has the authority to increase rent each year, lessening the amount of money you may be able to save overall. When you buy, you are in control. When you rent, your landlord holds the reigns.
It comes as no surprise that these market changes are not slowing down anytime soon. But it’s important to recognize that while we talk a lot about how most things are increasing, this also includes wages. It’s predicted that wages are set to increase to compete in the labor market, and with potentially more disposable income and those fixed payments when buying a home, you could have more money in your pocket overall compared to those who rent.
In Conclusion
When it comes to renting versus buying, the benefits of home ownership outweigh the latter. From fixed payments to complete control over the home you’re living in, to your payments going directly into the home instead of to a landlord, buying is the right track to take. With the market in a transitional period which will continue for the next year or two, it’s important to do your research to truly understand how these changes will impact your home buying decisions.