Renters are Missing Out

Rents have done nothing but increase since the rent moratorium ended in the middle of 2021. According to research done by the National Rent Report, rents around the nation are rising faster than before the pandemic. Rents have accelerated at a rate that succeeds the rate for each of the three years leading up to the pandemic. Like real estate prices, rents have also increased in the double digit range in 2021. To put rents into perspective, the average renters price increase prior to the pandemic was only 3.4% in the first 10 months in the year. While rent increases is nothing new, the rate of increase is. Even renting for one more year in order to find your new dream home could cost you thousands of dollars.

Research Shows Renters Are PAYING More

Renters not only stand to lose out on the benefits of actually owning a home, they also will miss out on the massive equity gains we have seen in the past year. When someone owns their house, it is just as much an investment as it is a place to live. As the investment is worth more through gaining market value, homeowners gain equity and net worth. In the current market, renters are paying someone else’s mortgage, allowing the landlord to usually have the full monthly payment funded, on top of gaining equity. Not only does increases in the home value help equity, but monthly payments also builds the equity one may have. Building equity allows for many options to be available to homeowners, including HELOC (home equity line of credit) loans.

Benefits Of Homeownership

As we have previously explained in our Home Equity And Net Worth article, research from CoreLogic shows tremendous equity gains for homeowners. In fact, in the past year, homeowners have gained an average of $51,000 in home equity. To put that into perspective, that is an average of about 18% gains on a long-term investment… in a year. In previous real estate markets, gaining close to 20% positive equity from home value appreciate could have taken well over 5 years. While home prices have soared, (see Home Prices), it is still more beneficial to buy a home, if it is available. With rents increasing 16% in a year, renters are paying about the same increase in rent as is the increase in home prices. It is hard to get ahead in the market when it becomes harder to save money due to higher costs of living.

What Renters Are Missing Out On

Renters clearly do not receive the same benefits as homeowners do. It is clear in the terms of home equity that renting is not always the best option. However, sometimes renting is the only option, so you have to make due. But if you can get into a home, or plan on getting into a home, it is still a great time to buy. With home prices looking to continue to rise, albeit at a slower rate, potential home buyers still look to be able to gain equity.

Unless you are renting a room from your mom and she pays you it all back when you move out, renters receive nothing back for renting. None of the monthly rent payments are usually paid back besides a security deposit. This leaves renters in a hole when they go to buy, as they are going to be less prepared to buy a home. Renters will be less prepared because their rents increased at the same rate as home prices, meaning they have to save more WHILE paying more. That is hard to do.

Renting Vs Buying

All in all, there is tremendous benefits to buying a home than renting a home. While not all of these benefits were covered in this article, one of the biggest reasons was: financials. Owning your home over the past 12 months increased your net worth and home equity by about 20% on average. This averages out to about $51,000 across the nation. While renting, you were stuck paying close to 20% more, but received a $0 increase to your home equity, and likely your net worth. Of course, renting still provides the benefits of having shelter and a consistent place to live. Also, renting might be your only option in some situations. However, we recommend to save where you can and ultimately shoot for becoming a homeowner.

If you need help with becoming a homeowner, feel free to reach out to our real estate team at Premier Homes Team. You can view all the listings in Louisville, Kentucky by visiting our listing website.