Renting a home, long derided by many as “throwing away your money,” seems borderline fashionable these days. But is it the correct choice for you in 2023?
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If you’re able to buy a home, you can of course build equity for yourself rather than build it for a landlord. Yet recent studies have shown dramatic increases in “high-income” renters. In other words, more people who could afford to buy a home are choosing to rent instead.
In January, RentCafe released a study noting that the number of “millionaire renters” tripled between 2015 and 2020. The study also showed an 82% increase in renters with annual incomes of $150,000 or more during that same time period. A recent Redfin study determined that buying a home was more economical than renting in only a handful of major U.S. metro areas.
Soaring home prices in many markets, combined with recent bumps in interest rates, are certainly a factor. A recent GOBankingRates survey asked respondents what was holding them back from buying a house. The top response (30.4%) was “Mortgage rates are too high right now.” Another 27.2% said they couldn’t find a house they liked in their price range, and 22.5% said their monthly income was too low to afford a mortgage.
Meanwhile, Realtor.com reported in June that fewer renters were considering buying homes and that many prospective homebuyers were delaying those efforts.
There are of course situations in which renting makes the most sense. Many can’t afford the down payment needed to buy. And investing in a home may not make sense if you aren’t sure where in the city/state/country/world you want to live. Some people just enjoy the mobility that renting offers. Others have it thrust upon them.
“A lot of people came out the pandemic not knowing where they wanted or needed to be,” said Brian Lavery, a managing broker with Seattle-based RE/MAX Northwest. “A lot of people got laid off or needed to be remote.”
“I think it (buying vs. renting) is a very personal decision,” added Jessica Lautz, deputy chief economist and vice president of research for the National Association of Realtors. “How long does that homeowner plan to be in that property?”
You also should factor in additional costs associated with buying and owning a home that renters don’t face, including closing costs, property taxes, homeowners’ insurance, money stashed for that eventual roof replacement, etc.
Nevertheless, experts say there are still plenty of good reasons to buy a house in 2023, if you can swing it. Here are a few of them.
Equity, Equity, Equity
Lautz noted that a median U.S. homeowner has built nearly $200,000 in wealth over the past 10 years.
“Homeowners have really been the winners in the housing market,” Lautz said. “Renters lose out on those wealth gains.”
Lavery maintains that real estate is “the best investment an individual person can make.”
“Even in a down market, prices can maintain their value and will eventually go back up,” Lavery said. “In the course of a few years, you can make a lot in equity.”
That equity isn’t just for selling time, either. You can borrow against it via a variety of options, including cash-out refinances and home equity loans.
In Many Places, Rent Isn’t Exactly Cheap, Either
Rents have declined year-over-year for the past two months and provided consumers with some much-needed relief, according to Realtor.com’s June 2023 Rental Report. The same report notes, however, that the median asking rent in the U.S. is still 24.1% higher than it was just before the pandemic.
The median asking rent in the U.S. last month was $1,745, per the report. In cities like New York or San Francisco, you’re likely to pay several thousand dollars each month.
Owning Your Home Comes With Tax Benefits
Among the biggest benefits: Those interest payments are tax deductible. You also should be able to deduct at least a nice chunk of your local property taxes.
Landlords often pass the cost of those taxes on to renters, who aren’t able to deduct them.
When You Own Your Home, You Can Do Whatever You Want With It
When you rent, there are limits on the changes you can make to the indoor and outdoor living space. If you do sink money into improvements, that money won’t follow you when your time in the space is over. Your landlord may appreciate it, though.
If you own, the cost of those improvements (or at least part of them) may come back to you when it’s time to sell. Plus, you can make your place truly YOUR place.
Lavery said, “One of the greatest benefits of owning your own property — whether it’s a rental or a primary residence — is that you can do whatever you want with that property.”
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This article originally appeared on GOBankingRates.com: 4 Reasons You Should Buy a Home in 2023, Even If It Feels Smarter To Rent