To rent or to buy a home, that is the million dollar question … and it’s not an easy one to answer.
Welcome to the “Financial Advice for an Unpredictable Economy” blog series. As my opening statement suggests, today’s topic is all about renting versus buying a home, the benefits of each, and how to decide which is right for you.
What’s Your Why?
For many Americans, home ownership is the ultimate dream; it’s viewed as one of life’s most significant achievements.
Despite the benefits, which I’ll get into shortly, deciding to become a homeowner is a big decision—for both your finances and your lifestyle—and it’s not one that should be taken lightly. There are many factors to take into consideration when deciding whether or not the time is right to say goodbye to renting and hello to homeownership.
You’ll want to start by considering your goals and asking yourself some hard-hitting questions. Are you financially ready to purchase and own a home? Is this the right time for you to own a home? Are you comfortable settling down in one place for a few years?
After you dig deep to honestly answer those questions, you must then answer the why behind wanting to take the leap into homeownership. Is it your dream and something you’ve always envisioned? Is it because you crave additional space for your growing family? Do you need a bigger yard? Are you looking for a new neighborhood or school district? Do you want to build equity (wealth) in something that’s solely yours?
If none of those above reasons (or others you’ve thought of on your own) appeal or matter to you, then perhaps homeownership isn’t what’s best for you, but the pressures of society were trying to get to you and tell you otherwise. Homeownership isn’t always one-size-fits-all, and that’s perfectly okay!
Owning and renting both provide you with unique benefits, and you’ve got to determine which is the best choice for you personally and financially. So, let’s talk about some of the advantages that you can have as a homeowner and as a renter, and go from there!
Advantages of Owning
Homeownership is one of life’s biggest responsibilities and commitments. It’s a rewarding investment that comes with many benefits. Here are some of the pros of owning a home:
Increased Equity: The equity in your home will grow as you consistently make monthly mortgage payments. The equity you build from your home will contribute to your overall wealth.
Smart Investment: Owning a home is a wise investment; your home is one of your greatest assets. As you put money toward your home, you’ll begin to see a return on your investment over time.
You’re in Control: Owning your own property gives you full control and freedom over what you decide to do to make your home yours. Got a creative side? Let your creativity soar by making updates, decorating, and painting as you please. Been wanting a pet? Open up your home to your very own furry companion.
Tax Benefits: As a homeowner, you may be eligible to receive certain tax benefits and tax deductions.
Consistent Monthly Payments: Your monthly mortgage payment shouldn’t increase based on market changes, which will allow you to keep your budget in check now and in the future. There could, however, be slight changes in the payment depending on property taxes and homeowners’ insurance, but that does not occur as often or as drastically as rent increases.
Security and Stability: Your home is exactly that—yours. It’s where you’ve chosen to put down roots and embrace the community you live in; it automatically comes with a sense of security and stability.
Advantages of Renting
On the contrary, renting can prove to be just as beneficial depending on your lifestyle and financial picture. Here are some of the advantages of renting an apartment or home:
Flexibility: One of the biggest pros of renting is flexibility; you don’t have to commit yourself to one location for years at a time. For instance, the standard for most apartment building complexes and rental homes are typically one-year agreements. But you may even find shorter-term rentals that provide month-to-month options. Renting is great if you’re the type of person that’s not keen on tying yourself down in one place for too long. You’ve got the ability to pack up and move from place to place as you see fit.
Fewer Responsibilities: HVAC issues? Leak in your ceiling? As a renter, you’re not responsible for taking care of or paying for those unexpected expenses out of your own pockets. Your landlord or management company is in charge of coordinating and fixing maintenance and repair issues as they arise.
Fewer Upfront Costs: Renters have the freedom of getting into a place quicker and at a lower cost. While homeowners are responsible for coming up with a down payment, appraisal, home inspection, closing costs, and realtor fees, renters typically only need to cover a security deposit, which is usually the first month’s rent.
Additional Amenities: More often than not, if you choose to live and rent in an apartment complex, you may have access to extra amenities like a pool, gym, patio, clubhouse, etc., and can use them whenever you please.
Credit Building Opportunities: If you’re taking necessary steps to rebuild your credit before jumping into homeownership, then renting is a great option for you that can help you build good credit.
No Property Taxes: If you’re renting, you’re not responsible for paying property taxes.
2023 Market Predictions
Now that we’ve talked about the benefits of owning and renting, let’s shift gears to talk about the ever-evolving housing market and how that could come into play and influence your decision.
Inflation is no stranger to any of us. Prices have increased on everything across the board. As it relates to the housing market, we have once again found ourselves smack dab in the middle of a very competitive and unpredictable market that’s leaving us unsure about which path to choose this year—to rent or to buy.
Regardless of whether you decide to continue renting or pursue owning, there is one thing I can tell you for certain … and it’s that housing is going to be more expensive in 2023.
So, what’s on the horizon for this year? Well, the housing industry “experts” are predicting the following in this season of economic uncertainty:
Buyer’s Market: Over the last few years, the market heavily catered toward sellers. But this year, it’s expected to shift to more of a buyer’s market (which will give buyers more of an upper-hand) instead of a seller’s market.
Rate Drop: Mortgage rates have fallen ever so slightly after climbing over 7% in 2022. Some experts are predicting that they’ll hang around the 6%-6.5% mark and fall under 6% near the end of the year, while others believe they’ll continue to rise.
Decrease in Home Price: After home prices reached record highs over the last couple of years, they’re finally expected to stabilize and decrease.
Inventory: Taking the price decrease into consideration, it’s important to note that inventory remains limited, especially depending on certain markets and location. This will, in turn, give sellers more leverage once again making it all the more challenging and expensive for buyers that may be in need of a home and getting into it quickly.
Rent Increase: Rent is expected to steadily increase in 2023 due to high demand (more people are choosing to rent due to interest rates and monthly mortgage costs) and fewer properties.
Again, I’d like to emphasize that these are just predictions. As with anything, there are various factors that will affect the housing market, and we will all be seeing it play out together.
The Decision is Yours
So, which path will it be for you: owning or renting?
If you’re planning to be in your next place long-term (at least 5 years), have financial stability and a steady income, and want full control over your living situation, then owning could be right for you. But if you need more flexibility or time to build good credit, then renting may be the safer bet.
Ultimately, it’s up to you to determine your next move and make the choice that’s best suited for you based on your personal financial situation and lifestyle. Sometimes, though, making major financial decisions like these can be overwhelming and scary. But that’s why we’re here. GOLD’s lending experts can provide you with encouragement and guidance as you come to your decision.
Depending on the route you choose, remember to keep GOLD in mind for all of your homebuying and rental needs. We’ve got a full suite of mortgage products and a dedicated mortgage consultant that’ll be on your side throughout the entire homebuying process, as well as lending solutions that can help you build credit to prepare you for life after renting.