Prices Are Up
Rental prices are up. According to estimates, rent inflation has pushed prices this summer up 29% over last year. Unfortunately, it does not appear that rent inflation will decrease in the near future either, as brokers say demand and rent prices are headed even higher in the fall.
With uncertainty and high prices continuing in the rental markets, many prospective renters are considering their options. Those who might have not considered buying a home in the past are wondering if it makes more financial sense with this inflation. The answer of whether renting or buying is better depends largely on individual financial circumstances, but the current state of high rent inflation might make home buying a better choice.
Knowing the benefits of buying a home instead of renting can help you make a good decision with your money, but first—why is there such high rent inflation?
What Caused Recent Rent Inflation?
High rents across the country in the last year have been caused by a sharp increase in demand and an abrupt decline in available rental units. Since 2020, single-person households (especially Gen Z adults), have sought to have their own places. In addition to these new renters, young families have also surged into the rental market, as many of these young households were priced out of their abilities to buy a home over the last year.
With the number of new households that have flooded the market, demand for available housing has largely outpaced the inventory. As a result, rental vacancies plummeted and costs went through the roof. These near-record-low vacancies for rental units also come as a result of demand for more space per person, which puts pressure on the housing market.
With households continuing to form and look for rental units, it is clear that demand in the rental market does not seem to be calming anytime soon. So why is buying a home a good option?
Why Is It Good To Buy A Home?
With rents increasing, it is easier to consider the possibility of buying a home instead. Here is a closer look at some of many benefits that home ownership can offer.
Instead of paying a landlord each month and saying goodbye forever to that money used for a monthly rent payment, you could be building equity. Building home equity is a significant benefit of owning a house, as it is your share of the value in the home. Your monthly mortgage payment is your way of building this equity. Even though you are paying the bank, you can retain value in the money you are spending each month, instead of it just going in a landlord’s pocket. And the more equity you have, the wealthier you are.
Even finance professors estimate that housing equity accounts for around 70 percent of the average American’s total wealth. Besides saving and investing, owning a house is a great way to build wealth and boost net worth.
By buying a home, you set yourself up to live for free one day. Obviously, there are still some associated costs that come with home ownership, but paying towards your mortgage each month instead of renting guarantees that one day you won’t have any monthly payments for your living space. That is something really to be proud of.
A Business Insider contributor was able to pay off their mortgage early, and they wrote “not having a monthly living payment is one of the best things we’ve ever done for our finances and sanity.” Buying a house allowed them this free future, and it is another great benefit of owning a home.
When you own a home, you aren’t subjected to yearly increases in your monthly payment. In these periods of high rent inflation, it is common to expect annual hikes when it comes time for lease renewal, and especially with the current market—these rent hikes can be steep. By owning a home, you know exactly how much you owe and can often make better financial planning.
Sense of Stability
Research finds that homeowning brings benefits that aren’t just financial. Homeowners often become more invested in their neighborhoods, resulting in a more valuable community. With home ownership, there is more chance for building trusted relationships with neighbors and gaining a sense of stability in where one lives.
This sense of stability that comes with owning a home also extends to children. Documented studies show that home ownership allows children better health, greater academic achievements, lower school dropout rates, and higher graduation rates. All of this comes with the stability that owning a home creates.
Owning a home also comes with tax deductions. Property taxes, private mortgage insurance premiums, energy-efficient additions, and interest you pay on your mortgage each month can all usually be deducted from your taxes. By being able to deduct a portion of your monthly housing expenses from your taxes, you enjoy a benefit that renters don’t have.
The Bottom Line
Rent inflation is expected to remain high in the current market. Until supply catches up to demand (which could be later rather than sooner), rent prices will continue to stay at expensive levels, costing many people extra money. Instead of paying these high prices, you could make a better investment through becoming a homeowner.
Buying a home comes with costs, but there are many benefits to it that renting does not have. You build wealth with home equity, avoid rent hikes with inflation, gain a sense of stability for you and your family, as well as much more.
Call Build or Buy Guy When It Is Time To Buy
If buying a home is the right option for you in these periods of high rent inflation, then look no further—Jason Williams – Build or Buy Guy – is the expert in real estate. His passion and expertise will help you find or build the property right for you.
If you want to learn more or to schedule a consultation or home assessment, Contact me here or call me at (208) 401-4066 to get started.
Home ownership matters: Home ownership and parenting. www.nar.realtor. (2010, October 20). Retrieved September 27, 2022, from https://www.nar.realtor/blogs/economists-outlook/home-ownership-matters-home-ownership-and-parenting
Knueven, L. (n.d.). 8 reasons why buying a house is better than renting, according to people who have done it. Business Insider. Retrieved September 27, 2022, from https://www.businessinsider.com/personal-finance/why-buying-a-home-is-better-than-renting#youve-got-a-shot-at-significantly-lowering-your-living-expenses-someday-3
Parker, C. (2019, October 29). 23 scientific reasons why owning is better than renting. CreditDonkey. Retrieved September 27, 2022, from https://www.creditdonkey.com/why-own.html
Robtfrank. (2022, July 14). Average rent in Manhattan was a record $5,000 last month. CNBC. Retrieved September 27, 2022, from https://www.cnbc.com/2022/07/14/average-rent-in-manhattan-was-a-record-5000-last-month.html
Thompson, D. (2022, September 12). Why the rent inflation is so damn high. The Atlantic. Retrieved September 27, 2022, from https://www.theatlantic.com/ideas/archive/2022/08/rent-inflation-housing-demand-prices/671179/