Avoid Rental Traps This Year
With home prices reaching all time highs, many people have been stuck renting. A lot of leases are going to be ending here in the new year, and many people are wondering where they will go. Not only have home prices gone up, but rents have also continued to climb, and in some places, outpace home price increases. Coming into the new lease season for many renters, it is important to understand some of the true costs of a rental versus homeownership.
If you are a renter, you should know that rents have been trending upwards for decades. With almost 40 years of rental increases, more and more of your income goes towards paying someone else’s mortgage. Unfortunately, sometimes people are stuck renting which is understandable. However, with many different ways and loan types out there, there is options for everyone. Below shows the median asking rent for the past few decades.
In 2021, we saw rents increase dramatically, alongside home prices. According to information gathers by ApartmentList.com, rents have increased since 2021. To quote their research,
“. . . the national median rent has increased by a staggering 17.8 percent. To put that in context, rent growth from January to November averaged just 2.6 percent in the pre-pandemic years from 2017-2019.”
Rental Price Increases
The increase we saw in 2021 accelerates the rent increases we already saw. In fact, this was the fastest rent acceleration in decades. Rents are continuing to rise fast and look to continue to outpace home prices coming into 2022. With home prices expected to increase about 5% in 2022, rents look to increase at 7%.
“In 2022, we expect this trend will continue and fuel rent growth. At a national level, we forecast rent growth of 7.1% in the next 12 months, somewhat ahead of home price growth . . .”
While it is easier said than done, becoming a homeowner helps you avoid the hidden costs of renting. Homeownership is the best alternative to renting that you can find, other than moving back in with your parents. Homeownership has its many benefits, including actually receiving equity in your home. The biggest knock on renting is paying someone else’s mortgage. You are stuck building someone else’s equity in their home, while they pass most the costs onto you as a renter.
Homeownership Versus Renting
According to Lawrence Yun, the Chief Economists at NAR (National Association Of Realtors),
“. . . fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment.”
Being able to purchase a home has tremendous benefits that usually outweigh the true costs of homeownership. The biggest thing to gain, especially in today’s real estate market, is equity. Right now is a strong equity building time in real estate, as home prices continue to skyrocket. Home prices look to increase, but the rate of home price acceleration will slow in the new year. Home prices are predicted to increase around 5% this year, compared to double digit increases in every tracked market in 2021. The average homeowner gained a whopping $56,000 in equity in 2021. There is many ways to take advantage of this equity as well.
Rental Bottom Line
For those planning to rent or who are unable to become a homeowner, remember the true cost of renting. It is important to try to remember these costs, and try to budget to avoid any surprises. With rents increasing faster than wages, your real income slowly decreases. While you might get a raise this year, if it does not increase more than your rent does percentage wise, you are losing money. Fortunately for homeowners, you have a fixed payment for years and interest rates will not affect how much you owe. This is true because your rates are locked in after securing your mortgage. Rates could go to 10% tomorrow but your rate would not change. Think about that this year when going to resign your lease.