Is It Better To Rent Than Buy a Home Right Now?

You may have seen reports in the news recently saying its more affordable to rent right now than it is to buy a home. And while that may be true in some markets if you just look at typical monthly payments, theres one thing that the numbers arent factoring in: and thats home equity. Heres a look at how big of an impact equity can have and why its worth considering as you make your decision.

What the Headlines Are Based on

The graph below uses national data on the median rental payment from Realtor.com and median mortgage payment from the National Association of Realtors (NAR) to compare the two options. As the graph shows, especially if youre not looking for a lot of space, it can be more affordable on a monthly basis to rent:

But if youre looking for something with 2 bedrooms, the gap between the median rent and the median mortgage payment starts to shrink to a difference that may be more doable. The median monthly mortgage payment is $2,040. The median monthly rent for 2 bedrooms is $1,889. Thats a difference of about $151 a month. But heres what happens when you factor in equity too.

How Equity Changes the Game

If you rent, your monthly rental payments only go toward covering your housing costs and your landlords expenses. So other than saving a bit more per month and maybe getting your rental deposit back when you move, the money you spent on housing each month is gone forever.

When you buy, your monthly mortgage payment pays for your shelter, but it also acts as an investment. That investment grows in the form of equity as you make your mortgage payment each month and chip away at what you owe on your home loan. Your equity gets an extra boost as home values climb which they typically do.

To give you a clearer idea of how equity can really stack up fast, heres some data for you. Each quarter, Fannie Mae and Pulsenomics publish the results of the Home Price Expectations Survey (HPES). It asks more than 100 economists, real estate professionals, and investment and market strategists what they think will happen with home prices. In the latest release, those experts say home prices are going to keep going up over the next five years.

Here's an example of how equity builds based on the projections from the HPES (see graph below):

Imagine you purchased a home for $400,000 at the start of this year. Chances are, since you bought, you plan to stay put for a while. Based on the HPES projections, if you live there for 5 years, you could end up gaining over $83,000 in household wealth as your home grows in value.

Heres how that stacks up compared to renting, using the overall median rent from above:

While you may save a bit on your monthly payments if you rent right now, youll also miss out on gaining equity.

So, whats the big takeaway? Whether it makes more sense to rent or buy is going to vary based on your personal finances. Its not a good idea to buy if the numbers truly dont work for you. But, if youre ready and able, adding equity as the final puzzle piece may be enough to help you realize buying is a better move in the long run.

Bottom Line

When it comes down to it, buying a home gives you a benefit renting just cant provide and thats the chance to gain equity. If you want to take advantage of long-term home price appreciation, talk to a local real estate agent to go over your options.

Ready to Take the Next Step? Let's Talk!

If you're pondering how the latest mortgage interest rates affect your real estate decisions, I'm here to help. With years of experience and a deep understanding of the market, I can provide the insights and guidance you need to make informed decisions.

Whether you have questions about the market, current rates, or real estate in general, don't hesitate to reach out. Give me a call today, and let's explore how we can achieve your real estate goals together.

Venessa James - Broker Associate    

ABR, ALHS, CHMS, MCNE, LUXE, SFR, SRS  

Platinum Experience Group - KW Professionals 

(281) 889-8292 platinumexperiencegroup.com

Integrity, Experience, Results 

Disclaimer: This blog post is intended for informational purposes only and should not be taken as professional financial advice. Rates and market conditions are subject to change based on economic factors and individual lender policies.