The Rental Market is on Fire. Is It Time To Buy?

The housing market has certainly been interesting in the past few years. The past year has seen limited supply and growing demand for the rental market and home sales. In fact, despite historically low-interest rates, the industry had an extraordinary booming year. 2021 showed the most significant annual gains in single-family house values and rental prices, low foreclosure rates, and the highest number of home sales in 15 years.

Rental prices kept pace with housing. Rental prices for single-family homes increased 7.8% in 2021, an all-time high according to CoreLogic. The rental market exploded as remote workers and young families fleeing the cities spurred double-digit increases in rental costs and squeezed supply.

With rental prices, home prices at all-time highs, and a tight housing supply, is it time to think about buying a home in 2022 instead of renting?

Some Housing Statistics to Think About

While the market in recent weeks has begun to cool a bit, it's still competitive. Since a home is likely one of the biggest purchases you'll make, it's essential to take some time and make an informed decision.

According to Redfin, as of June 30, 2021, the median sales price of a home in the U.S. was $386,888, a 24.8% year-over-year increase. The massive spike in demand in many markets has allowed for higher sale prices. This can often make it hard to decide whether to continue renting or purchase a home because you don't want to overpay.

Rental prices have also increased by double digits in most markets. According to Redfin, rents jumped more than 14% in December 2021, the most considerable rise in more than two years. However, in many major metropolitan markets, rents have skyrocketed. In Austin, Texas, New York City, Boston, several areas in Florida, and other cities throughout the country, rents have jumped by 35 to 40% year over year.

Add to this the fact that there is less housing available for sale or rent than in the past 30 years. With supply shortages worsening and growing inflation contributing to rising rental costs, it becomes difficult deciding whether to rent or buy.

While rental prices in the U.S. initially dropped when COVID-19 hit, prices rebounded strongly in 2021 and quickly outpaced pre-pandemic trends. As a result, rental prices have far outpaced wage increases.

The Housing Market in 2022 and Beyond

Housing market predictions are about as reliable as the five-day weather forecast. The truth is that no one can predict what will happen with 100% accuracy.

However, many industry experts predict continued strong price appreciation, scarce inventory, and high demand. Overall, the housing market is doing well and will most likely not crash in 2022. The trends and forecasts for the next 12-24 months show that the market will most likely stay strong, with many of the factors that drove prices to new highs in 2021 remaining firmly in place. Last year, homeowners saw a market where properties sold quickly and often above asking, as numerous buyers fought for limited inventory.

Last year prices increased by an unsustainable 18.8%. The market is even tighter than it was before the spring 2021 frenzy. Experts like Zillow increased their bullishness in January, predicting growth of up to 16.4% in 2022. They recently adjusted anticipated price growth to reach 22% by mid-year. However, price growth is expected to slow through February of 2023.

Fannie Mae is predicting that by mid-2023, price appreciation will return to the pre-pandemic rate of 5% annually. They also expect that mortgage rates will rise modestly, providing some relief to buyers as prices climb. Slowing price appreciation and potentially increased inventory could help avoid a crash in 2023. The main downside risk continues to be increasing inflation. As mortgage rates increase, refinancing activity will soften as rates gradually rise and the Fed works to tame inflation.

So Should Your Continue To Rent or Consider Buying a Home?

There is no single answer to this question, as there are both pros and cons to both options. However, there are a couple of factors to consider in your decision-making process. First are your finances. In a typical market renting is often the more affordable option. That being said, this is not a typical housing market. Rents have increased to the point where even as mortgage interest rates rise, buying a home might be a better option.

Ultimately, your choice depends on several considerations. One major factor is your personal finances.

In terms of lifestyle considerations, consider what is important to you. Are you seeking the flexibility to move if your career requires it, or are you looking for stability to put down roots in a place you can call your own? Here are five considerations to explore before you make a final decision on whether to rent or buy.

How Long Do You Plan to Live in the Same Place?

Are you planning on putting down roots in the community? If you're planning or have a family, are you happy with the schools? If you're sure you'll stay in the same place for at least five years, buying can make sense. It can be a good fit both personally and financially.

However, if you don't have kids or get that big promotion but it's halfway across the country, the smarter choice might be to rent. While you can buy a home and sell it in a few years if your situation changes, the costs like moving, closing costs, and repairs may not be worth it.

Look at the Cost of Renting VS Buying a Home

In the past, renting was almost always cheaper than buying a home because of the upfront costs involved, like the down payment, closing costs, moving expenses, and renovations. In today's market, rental prices have risen to the point where it may cost you more each month to rent than a mortgage payment. However, there are other ownership costs to consider, like property taxes, homeowners insurance, and HOA fees in some instances.

However, even in a traditional market, buying a home is almost always cheaper over the long term. According to the National Association of Realtors, a homeowner's mortgage payment is lower than that of a renter after six years. This assumes that the rent increases at 5% annually and the homeowner is paying a fixed monthly mortgage.

Mobility or Putting Down Roots

Things change. It can be hard to predict where life's road will take you. If you intend to stay in one place, close to family, or planning on raising a family, and you have the means, buying a home makes the most sense. Examine your current situation and whether it could change in the next few years. For example, if you're moving up in your career and an opportunity for a promotion comes up, but it is on the other side of the country, renting is probably the best choice. Think about your current lifestyle and where it will be before buying a home.

Finally, Assess Your Current Financial Situation

You need to be realistic about your financial situation when deciding between renting and buying. Once you analyze the costs involved, be honest about whether you can afford to own a home's upfront and ongoing expenses. The worst situation to be in is where you have a home but are cash poor and unable to enjoy life!

The Bottom Line On Buying A Home In Today's Market

Consider all the factors when deciding on buying a home or continuing to rent. Renting and buying both offer pros and cons. In reality, your lifestyle, future plans, and financial situation will be the primary factors to consider when making a decision. Speak with a Realtor® or your financial advisor if you need additional information or are unsure which choice is right for you.