Rent or Buy: What's the Right Move Now?

What the Headlines Are Based on

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

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However, if you're seeking a property with two bedrooms, the disparity between the median rent and the median mortgage payment begins to narrow, making it more manageable. The median monthly mortgage payment stands at $2,040, while the median monthly rent for two bedrooms is $1,889, resulting in a difference of approximately $151 per month. Yet, when factoring in equity, the dynamics change.

How Equity Changes the Game

When you rent, your monthly payments solely cover your housing expenses and contribute to your landlord's income. Apart from potentially receiving your rental deposit back upon moving, the money spent on housing each month is essentially lost.

Conversely, buying a home offers a dual benefit: your monthly mortgage payment not only covers your shelter but also serves as an investment. As you make your mortgage payments and reduce your loan balance, your investment grows in the form of equity. Additionally, rising home values further enhance your equity, which tends to increase over time.

To illustrate the rapid accumulation of equity, consider the insights provided by Fannie Mae and Pulsenomics through their Home Price Expectations Survey (HPES). This survey, conducted quarterly, gathers input from over 100 economists, real estate professionals, and market strategists regarding their predictions for home prices. The latest release indicates that these experts foresee continuous growth in home prices over the next five years.

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

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Suppose you bought a home for $400,000 earlier this year with the intention of settling in for an extended period. According to the HPES projections, if you remain there for five years, you could potentially accumulate over $83,000 in household wealth as your home appreciates in value.

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

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While renting may offer some savings on monthly payments, it also means forfeiting the opportunity to build equity. Ultimately, whether renting or buying is the better choice depends on your individual financial situation. It's crucial not to rush into buying if it's not financially feasible. However, if you're financially prepared, the prospect of gaining equity could tip the scales in favor of buying for long-term benefits.

Bottom Line

In conclusion, while renting may provide short-term financial relief in terms of lower monthly payments, it's important to weigh this against the long-term benefits of homeownership, particularly the opportunity to build equity. Each individual's financial situation is unique, so the decision between renting and buying should be based on careful consideration of personal finances and long-term goals. If financially feasible, investing in a home can offer not only a place to live but also a valuable asset that appreciates over time. However, it's essential to ensure that buying aligns with your financial capabilities and future plans before making a commitment.

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