Avoid the Rental Trap in 2023
Avoid the Rental Trap in 2023
If you are a renter, you must make an important decision every year: whether to renew your current lease, begin a new one, or purchase a home. This year is no exception. But, before you delve too deeply into your options, it's a good idea to understand the true costs of renting in the future.
According to realtor.com, both current and new renters have seen their rent increase in the last year:
“Three out of four renters (74.2%) who have moved in the past 12 months reported seeing their rent increase. The strain from recent rent hikes isn’t exclusive to renters who have recently moved. Nearly two-thirds of renters (63.2%) who have lived in their current rental between 12 and 24 months, and likely renewed their lease, have also reported increases in their rent.”
And, based on historical data, this should come as no surprise. That's because, according to the Census Bureau, rents have been steadily rising since 1988 (see graph below):
So, if you're thinking about renting in 2023, consider whether this trend is likely to continue. According to realtor.com's 2023 Housing Forecast, rents will continue to rise (see graph below):
Rents are expected to rise 6.3% in the coming year, according to the forecast (shown in green). When compared to the blue bars in the graph, it's clear that the 2023 projection does not call for as drastic an increase as the ones renters have seen over the last two years, but it's still higher than the historical average for rent hikes between 2013 and 2019.
That means that if you plan to rent again this year and have not yet renewed your lease, you may have to pay more.
Homeownership is a viable alternative to rising rents.
These rising costs may cause you to reconsider your other options. If you want more stability, it may be time to prioritize homeownership. One of the many advantages of owning your own home is that it provides a consistent monthly payment that you can lock in for the life of your loan. As Freddie Mac puts it:
“Monthly rent payments may increase over time, but a fixed-rate mortgage will ensure that you’re paying the same amount each month. With a fixed-rate mortgage, your interest rate is locked in for the life of loan. Steady payments allow you to budget wisely and make plans for the future.”
If you plan to relocate this year, locking in your monthly housing costs for the life of your loan can be a significant benefit. You won't have to worry about adjusting your budget to account for annual increases, as you would if you left your housing payment up to your landlord and their renewal cycle.
Homeowners also benefit from the fact that their equity has grown significantly. According to CoreLogic's latest Homeowner Equity Insight report, the average homeowner gained $34,300 in equity over the last year. Your rent payment as a renter only covers the cost of your residence. When you pay your mortgage, you increase your wealth through the forced savings of your home equity.
If you're thinking about renting this year, it's important to consider the true costs. Contact a local real estate advisor to learn how you can start your journey to homeownership right away.
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