Prices for everything have been going up—from food, to gas, to services, and people are getting less for the dollar. Rents are no exception.
After an unprecedented period of time where renters could more or less just cite COVID as a reason to not pay rent, the moratoriums on evictions are gone and rents are roaring higher—particularly with single-family rental houses.
People rent single-family homes for many different reasons, and it often makes sense to do so. If you’re relocating to a new area and aren’t sure if you’ll stay in the area for long, or want to get to know the area before buying a house, renting certainly makes sense. Or, perhaps it’s the only option due to credit issues, or the inability to obtain a mortgage for other reasons.
But one reason for renting that may need to be questioned is the notion that it’s more affordable to rent than buy, especially if you’re trying to rent a single-family house.
CNBC recently reported that single-family rents are up 10.9% year over year, which is three times the 3.2% annual growth seen in October 2020. At the most basic level, this is due to the simplest of economic laws, which is supply and demand. Vacancy rates are at a 25-year low, so there are less homes to rent and demand for them is high, so landlords can easily demand higher rents.
Much of this demand reportedly roots back to people who would otherwise buy a house, but decide to rent because they feel home prices are high, and the competition to buy houses on the market has been fierce. Valid reasoning…until and unless renting actually costs more than buying. With rent prices increasing, and the competition getting as fierce for rental homes as it is in the buyers’ market, it does beg the question whether it makes more sense to rent if you can qualify to buy a house.
While home prices have certainly risen in recent years, buying a house can hedge against inflation, especially when rates are low, according to this Forbes article. Locking in a low, fixed mortgage rate with even a low down payment is possible. So, it may make more sense to take advantage of the historically low interest rates (before they jump up), brave the competition, and spend the security deposit (and first and last month’s rent) on a downpayment to purchase a home rather than rent one.
Renting might end up being your best (or only) option, but it certainly can’t hurt to weigh which makes more financial sense. Just running on the assumption that renting is your best or only option could actually be costing you more than you think.