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The Buying vs Renting a Home Dilemma in 2022

Think about what’s right for you – not what others think is right for you

Planning Economy

Spring is a time for fresh starts and, for some, a new home. Before you head out to open houses, your first question should be: Should I own a home at this time? Your second: Or should I remain a renter?

Finding your first home is enormously gratifying, but funding it can be daunting. Yes, buying a home has its advantages. The government rewards homeownership with favorable tax treatments. You get to build up equity that is yours to keep. And if you’re lucky, the value may increase (don’t bank on it, though).

Maybe the best of all, there’s empowerment in ownership. You can paint the walls any color you please – or even tear them down entirely – without asking for permission.

However, buying a house is a substantial financial commitment you can’t make on impulse.

Are You Financially Ready?

Emotions aside, if you’re not financially ready, it might make sense to continue renting until you are on firmer footing.

The costs of homeownership often surprise former renters. These include your initial down payment and opportunity costs. Opportunity costs are what else you could be doing with the money, such as paying off high-interest debt from credit card balances or personal loans).

You also must factor in several recurring costs: your mortgage, annual property taxes, insurance, standard maintenance, home improvements, and applicable condo or neighborhood association fees.

Then, there are the emergency reserves you want to have for events that insurance doesn’t cover – a refrigerator breakdown.

Current Housing Trends

There are a lot of factors driving up home prices (for buyers and renters), and each of the elements carries different weight depending on where you live (location, location, location). In some regions, you have: incomes that have not kept pace with housing costs, a current slowdown in construction, and a surge in homebuying driven by crazily low mortgage rates (that’s changing), to name a few.

And as home sales have exploded, the number of listings has dropped while the median home price has skyrocketed. For example, the number of active housing listings was at its lowest in five years in January 2022, with 408,922 active listings on the market. That’s a 60% drop from about 1 million listings in February 2020, just before the coronavirus recession hit.

And according to the National Association of Realtors:

“The first quarter of 2022 saw more markets reach double-digit annual price gains than the previous quarter. Seventy percent of 185 measured metros experienced such price gains, up from 66% in the preceding quarter.

These increases come as median single-family existing-home prices rose at a faster rate nationally – 15.7% – from one year ago, up to $368,200. In comparison, the year-over-year pace in the prior quarter was 14.3%. Notably, the South region made up 45% of single-family existing-home sales in the first quarter and notched a double-digit price appreciation of 20.1%. Meanwhile, the Northeast saw a climb of 6.7%, the Midwest 8.5%, and the West 5.9%.

The top 10 areas with the highest year-over-year price gains were made up of midsize and small markets, with half of the sites located in Florida. Those include Punta Gorda, Fla. (34.4%); Ocala, Fla. (33.8%); Ogden-Clearfield, Utah (30.8%); Lakeland-Winter Haven, Fla. (30.1%); Decatur, Ala. (28.9%); Tampa-St. Petersburg-Clearwater, Fla. (28.8%); Fort Collins, Colo. (28.4%); North Point-Bradenton-Sarasota, Fla. (28.0%); Myrtle Beach-Conway-North Myrtle Beach, N.C.-S.C. (28.0%); and Salt Lake City, Utah (27.9%).”

Current Renting Trends

Renters across the U.S. have seen the average rent rise 18% over the last five years, outpacing inflation, according to consumer price index data from the Bureau of Labor Statistics. Between 2017 and 2022, the cost of all goods and services increased by 16% due to inflation. During that span, the growth in rent prices exceeded inflation in every region but the Northeast as the average rent:

  • Rose 21% in the West
  • Rose 20% in the South
  • Rose 18% in the Midwest
  • Rose 12% in the Northeast

average-US-rent-over-five-years

Housing vacancy rates, meanwhile, have dropped over the last decade. The vacancy rate for rental units fell from about 10% in 2010 to 5.1% in 2022.

Your Financial Advisor

Where home prices are headed, where interest rates are headed, and whether buying a new home is right for you is not only a complicated equation, but one that is very personal to you. Your advisor can help you weigh the pros and cons of this decision.

Happy home buying or renting, whichever is right for you.

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