The decision between owning a home and renting is a common dilemma for many individuals and families. While both options have their merits, homeownership offers unique advantages that make it a wise financial and lifestyle choice...wondering if you should continue renting or if you should buy a home this year? If so, consider this. Rental affordability is still a challenge and has been for years. That’s because, historically, rents trend up over time. Data from the Census shows rents have been climbing pretty steadily since 1988.
And, data from the latest rental report from Realtor.com shows rents continue to grow today, even though it’s at a slower pace than we saw at the height of the pandemic:
“In March 2023, the U.S. rental market experienced single-digit growth for the eighth month in a row . . . The median asking rent was $1,732, up by $15 from last month and down by $32 from the peak but is still $354 (25.7%) higher than the same time in 2019 (pre-pandemic).”
With rents much higher now than they were in more normal, pre-pandemic years, owning your home may be a better option, especially if the long-term trend of rents increasing each year continues. In contrast, homeowners with a fixed-rate mortgage can lock in a monthly mortgage payment for the duration of their loan (typically 15-30 years).
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, depending on how much space you need, it’s typically more affordable to own than to rent if you need two or more bedrooms:
So, if you’re looking to live somewhere where you have two or more bedrooms to accommodate your household, give you more breathing room to spread out your belongings, or dedicate the extra space to practice your hobbies, it might make sense to consider homeownership.
In addition to shielding you from rising rents and being more affordable when you need more space, owning your home also allows you to start building your own equity, which in turn grows your net worth.
And, as home values typically rise over time and you pay off your mortgage, you build equity. That equity can set you up for success later on because you can use it to help fuel a move to an even bigger space down the line. That’s why, according to Zonda, the top reason millennial homeowners bought their home over the past year was to build their own equity instead of someone else’s.
Protection against Rent Increases:
Renters are vulnerable to fluctuating rental prices, which can rise significantly over time. In contrast, homeowners benefit from a fixed-rate mortgage, providing stability and protection against rising housing costs. With a fixed mortgage payment, you can budget and plan for the long term, knowing that your housing expenses will remain relatively consistent, even as property values increase.
Potential for Tax Benefits:
Homeownership often brings with it various tax benefits that can help reduce your overall tax burden. For example, mortgage interest and property tax payments are generally tax-deductible, providing potential deductions during tax season. These tax advantages can add up significantly over time and contribute to the overall financial appeal of owning a home.
Wealth Accumulation and Investment:
Historically, real estate has proven to be a valuable long-term investment. As property values appreciate over time, homeowners can accumulate wealth and potentially benefit from a substantial return on their initial investment. Owning a home not only provides a place to live but also serves as a potential asset that can appreciate and build wealth over the years.
While renting offers flexibility and convenience, homeownership provides a multitude of long-term advantages that make it a wiser choice for many individuals. From building equity and long-term financial benefits to the stability, pride, and control over your living space, owning a home offers a unique sense of security and financial empowerment. Additionally, the potential for tax benefits and wealth accumulation further solidifies homeownership as a smart financial decision. If you are ready to establish roots, create a long-term investment, and experience the joys and benefits of homeownership, owning a home is a logical step towards securing your financial future.