The right move for you may depend on multiple factors
Living in cramped quarters with a roommate or two – or a growing family – is enough to make even the most frugal among us long for more room under our roof.
When it comes to renting a home versus taking out a mortgage to buy one, though, there’s much to consider. Many people, millennials included, are feeling compelled to jump into the just-starting-to-cool-down real estate market, now that interest rates are rising and home prices have stopped climbing in most U.S. markets.
If you are on the fence about whether to rent or buy a home, consider these factors:
Reasons to rent
When your life’s trajectory is uncertain, and you aren’t sure where you may be in a year, or you are between jobs or thinking of changing careers, you are likely better off renting. That’s not to say that rent will be much less than a mortgage at this particular point in time, but there are certainly fewer additional costs to consider including maintenance, insurance and taxes.
The average monthly rent for apartments in the United States rose substantially in 2021. As of February 2022, the average monthly rent for a two-bedroom apartment in the U.S. reached $1,295, up from $1,100
a year before, according to research conducted by Statista. Apartment rents vary widely depending on where you live. Rent in large metro areas such as New York City or San Francisco, where space comes at a premium, have much higher price points for apartments and homes.
The bottom line: If you’re still looking for full-time work, and flexible about where job opportunities might take you, renting allows you to maintain some flexibility, so that you can move without too much hassle if you land a job in another area. Renting also offers the freedom for you to trade up if you score a full-time job and have the ability to spend more on housing.
Reasons to buy
Do you love the area where you live and plan to stay put for the foreseeable future, or at least five to seven years? Do you have an emergency fund that will allow you to replace dead appliances and pay the mortgage for a few months if you lose your job? Do you earn enough to maintain a yard, pay property taxes and homeowner’s insurance? If you can honestly answer yes to all of those questions, then buying a home could be the right option for you.
If you haven’t been in the market for a home in recent months, take a look online at your favorite real estate site to get an idea of what homes are selling for where you live or want to live. While the real estate market does appear to finally be leveling off, home prices are much higher than they were pre-pandemic. In April 2022, home prices were up 15.3% compared to 2021, selling for a median price of $423,715, noted Redfin, a national real estate brokerage.
In early June 2022, the average for a 30-year fixed-rate mortgage was 5.09%, according to FreddieMac. That was down slightly from the week before when it was 5.10%. In 2021, in late spring, the 30-year fixed-rate mortgage averaged just 2.99%. The rise in mortgage rates means the number of people who can afford to buy a home is shrinking. The Federal Reserve has indicated it will likely raise rates a few more times this year, which means the longer you wait, the more it could cost to borrow the money to buy a home.
The bottom line: Even with rising rates and higher home prices, real estate can still be a good investment. Another way to look at homeownership is that you’re building up what amounts to a supplemental savings account. Paying off a mortgage is a good way to do that. When the mortgage is paid off, you’ll have a lump sum you can then invest in another property, if and when you decide to move.
Content by Savvy Money