Should you rent or buy?
Right now, people want to know if they should sit on the sideline and rent, jump into the market and buy, or sell then rent for a while.
In the past year, the number one real estate-related search has been, “Are we in a real estate bubble?” …Questioning whether or not there will be an impending crash, to which Dr. Lawrence Yun, NAR’s Chief Economist, says absolutely not. Dr. Yun cites lower than needed new construction rates, high creditworthiness of buyers, low inventory, and high down payments as being reasons he believes there will not be a crash, and furthermore, he expects values to continue to appreciate further.
If timing the market is the only consideration, now is a time to buy. However, there is more to consider when determining whether to rent or own.
With both home prices and rental rates rising, which option fits you best? There are a lot of factors to consider: risk, reward, lifestyle, use, and more.
Benefits to owning a home include: potential value appreciation, fixed payments, building equity with each payment, preferential tax treatment, and an increased sense of social stability.
Benefits of renting include: shorter-term contracts allowing for freedom to relocate, low to no property maintenance responsibility, and generally no responsibility for a mortgage payment or property taxes (although those will be paid with your rental payment).
There are also risks and costs associated with both owning and renting a home. With renting, your rental rate may increase with each new contract, your payment does not help you build equity, there may be use restrictions and you are not guaranteed the ability to rent the same property beyond your current contract, meaning you may need to find new housing at the end of your rental term. With homeownership, you are responsible for the property’s maintenance, financing, and curing any adverse issues that may affect your home (flood damage for example – tip: ensure you are properly insured!).
For the past decade, home values have generally risen, but that is not always guaranteed and is a risk associated with owning a home vs renting. Homeowners have an average net worth 40x that of renters. If you own a home, over time, you’ll own the asset, whereas with renting, you get no ownership stake.
Ultimately, it is up to you to decide whether renting or owning works best for you. I hope that this article was helpful in making this decision.