The recent run up in home prices of the past few years has many asking the same question that surfaces at some point each year: “Is it cheaper to rent instead of buy a home?” Of course, the answer to this question is multifaceted and highly dependent on your local area and personal situation. Recently, John Burns Real Estate Consulting conducted a national analysis to address this question. On the surface, higher home prices and rising mortgage rates have certainly made renting more appealing. Interestingly, a little over a year ago, the monthly costs of owning and renting were virtually identical. Currently, owning a home costs $839 more per month than renting, according to this analysis. To put this figure into perspective, this differential is almost $200 higher than at any time since the turn of the century. To view their full report, click here.
All real estate is local
As with all real estate, it is all about location! Although, the national average indicates that owning a home may be more expensive than renting, your local market data is all that matters. Although home prices have risen significantly across most markets, we are also seeing rental prices increase substantially in many markets as well. The national average for year-over-year increase in cost to own a home is currently +37%. By comparison, the national average for year-over-year single-family home rent growth is +6%. The net result of this is that the difference between owning and renting = +31%, thus making owning more expensive than renting in the current market.
Do the math!
In addition to analyzing the housing dynamics for your location, it is also important that you analyze your personal situation and time horizon. For example, if you have relocated temporarily for a work assignment, it is quite possible that renting makes more sense than buying. Although nobody has a crystal ball on where home prices will go over the next several years, most real estate experts predict that home prices will likely see modest growth or even stabilize for the foreseeable future.
In the event that you are considering staying in a particular location for a longer term, it may still make sense to buy a home as opposed to rent one. One way to analyze this is to take the amount of money that you would likely spend in rent over a period of time and compare that with the possible equity gained through home ownership. For example, if you would be paying $5,000/month for a rental home this would equate to $60,000 on an annual basis. Even if you were to assume that your rent would not increase over subsequent years (which is highly unlikely), in only 3 years of renting you will have paid $180,000 with no equity to show for it. The next question that you would want to ask yourself would be whether or not you think a comparable home would depreciate by $180,000 over the same 3 years. If the answer to this question is yes, then it may be equivalent to rent or buy the home. If the home were to depreciate by more than $180,000 over 3 years, then this would certainly make renting more favorable. Lastly, if the same home would likely appreciate or even depreciate by less than $180,000 over 3 years, then buying a home would likely make more sense.
Although the advantages and disadvantages of renting vs buying are multifaceted, this analysis must be done at the local level and preferably with a local and knowledgeable real estate professional. At Live South Florida Realty, Inc. we have been assisting all types of clients with these important decisions. Whether you are a first-time home buyer or a seasoned real estate investor, we can assist you as well. Contact Natasha today at (561) 352-6932 and she will be happy to assist you with your real estate needs. Do you want the power of the South Florida MLS right on your mobile device? Download the Florida Home Search App today!