The majority of people in my generation and even those decades younger couldn’t wait to stop paying rent. It was drummed into our brains by our parents and grandparents that paying rent was a waste of money and you need to buy, buy, buy. Like so many other norms in real estate, that philosophy has also been somewhat upended.
An increasing number of professionals around the country who can more than afford to purchase a home and young retirees who may have just sold their family homes are reluctant to buy another one and have decided to rent instead. To make their decision just a little bit more confusing is the shortage of rentals, creating a similar market for rentals that we have been experiencing with sales, including bidding wars and offering more than the asking rental price.
They point out the increase in mortgage rates, the astronomical asking prices and the shortage of inventory to justify their decision. Instead, they are considering renting high-end rentals, way above the $2,000-a-month median national rent, with a lot of amenities, not caring about the cost-versus-owning calculation. Those calculations may have changed, and there are online calculators you can use to determine what the real cost of owning versus renting is over a period of years.
For most property owners, just the straight math of owning versus renting is in favor of renting. This is including the cost of mortgage, taxes, insurance, maintenance and many other homeownership-related expenses. Of course, property appreciation is not included in this calculation, but many new renters have already cashed out their equity in their previous homes and may be looking for just an easier and less expensive lifestyle and/or are willing to wait for a more normal real estate market.
Renting, of course, will give you more flexibility and freedom to make life decisions. There are no maintenance responsibilities and the burden of doing those repairs is someone else’s problem. Of course, your landlord can increase the rent at the end of your lease, there are no tax benefits to renting, you can’t make changes, pets could be a no-no and rules must be followed.
We all know the pros of owning a home, starting with the appreciation. Becoming a homeowner is the best way for average middle-class people to accrue wealth; over time, it’s a good investment and probably beats the stock market. But what really appeals to buyers about ownership is, of course, the freedom to modify your property, have a tax benefit during the years you will live in the home, have a big deduction on your equity when you sell and privacy.
Owning a home can be inconvenient. There is nothing liquid about a home if you need to sell, and there is a process, even in this favorable market. Monthly expenses can dramatically change in the face of a major repair bill or an increase in property taxes. And even though home ownership traditionally has been a good solid investment, we all saw during the financial crisis that property values can go down.
Renting has been frowned upon in the past by previous generations, but it’s getting another look from a large segment of the population, including young people who can’t afford the real estate environment we’re in and older people and professionals who can afford a home but choose not to buy at this time. Whoever you are, renting is not what it once was, so leaving the housing market and going into the rental market may not be as easy as it sounds.
