If youre a renter, you likely face an important decision every year: renew your current lease, start a new one, or buy a home. This year is no different. But before you dive too deeply into your options, it helps to understand the true costs of renting moving forward.
In the past year, both current renters and new renters have seen their rent go up based on information fromrealtor.com:
Three out of four renters (74.2%) who have moved in the past 12 monthsreported seeing their rent increase. The strain from recent rent hikes isnt exclusive to renters who have recently moved.Nearly two-thirds of renters (63.2%) who have lived in their current rental between 12 and 24 months, and likely renewed their lease, have also reported increases in their rent.
And if you look back at historical data, that shouldnt come as surprise. Thats because, according to theCensus, rents have been rising fairly consistently since 1988 (see graph below):
So, if youre considering renting as an option in 2023, its worth weighing whether this trend is likely to continue. The 2023Housing Forecastfromrealtor.comexpects rents will keep climbing (see graph below):
That forecast projects rents will increase by 6.3% in the year ahead (shown in green). When compared to the blue bars in the graph, its clear that the 2023 projection doesnt call for an increase as drastic as the ones renters have seen over the past two years, but its still above the historical average for rent hikes between 2013-2019.
That means, if youre planning to rent again this year and youve not yet renewed your lease, you may pay more when you do.
Homeownership Provides an Alternative to Rising Rents
These rising costs may make you reconsider what other alternatives you have. If youre looking for more stability, it could be time to prioritize homeownership. One of the many benefits of owning your own home is it provides a stable monthly cost that you can lock in for the duration of your loan. AsFreddie Macsays:
Monthly rent payments may increase over time, but a fixed-rate mortgage will ensure that youre paying the same amount each month.With a fixed-rate mortgage, your interest rate is locked in for the life of loan. Steady payments allow you to budget wisely and make plans for the future.
If youre planning to make a move this year, locking in your monthly housing costs for the duration of your loan can be a major benefit. Youll avoid wondering if youll need to adjust your budget to account for annual increases like you would if you left your housing payment up to your landlord and their renewal cycle.
Homeowners also enjoy the added benefit ofhome equity, which has grown substantially. In fact, the latestHomeowner Equity Insightreport fromCoreLogicshows the average homeowner gained $34,300 in equity over the last 12 months. As a renter, your rent payment only covers the cost of your dwelling. When you pay your mortgage on a house, you grow yourwealththrough the forced savings that is your home equity.
Bottom Line
If youre thinking of renting this year, its important to keep in mind the true costs youll face. Chat with a Seven Gables Advisor to see how you can begin your journey toward homeownership today.
