Is It Better to Rent Than Buy A Home Right Now?

Recently, there has been a lot of talk suggesting that renting is currently more economical than buying a home, particularly when comparing typical monthly payments. However, these comparisons often overlook a crucial factor: home equity. Let's explore why considering equity is important in your housing decision.

Understanding the Data

The below graph draws on national statistics for the average rental and mortgage payments, sourced from Realtor.com and the National Association of Realtors (NAR), respectively. It illustrates that renting might seem cheaper monthly, especially for smaller living spaces.

However, the disparity lessens with larger properties. For instance, the average monthly mortgage for a two-bedroom home is $2,040, compared to $1,889 for renting the same. This results in a monthly difference of $151. But this calculation changes once you consider equity.

The Role of Equity

Rental payments are expenditures that cover your living situation and contribute to your landlord's financial obligations, with little else to show for it once you vacate. Conversely, buying a home means your mortgage payments not only secure your residence but also build personal wealth through equity. This equity accumulates as you pay down your mortgage and benefits from the potential rise in property values.

For a more tangible perspective on how quickly equity can increase, consider the Home Price Expectations Survey (HPES) conducted by Fannie Mae and Pulsenomics, which gathers insights from over 100 economists and market experts. Their latest forecast predicts a continual rise in home prices over the next five years.

For example, if you bought a home at the beginning of the year for $400,000 and plan to stay for five years, the HPES suggests you could see an increase in your home's value by more than $83,000.

Comparative Analysis

When you rent, although you might save a little each month compared to owning, you lose the opportunity to build equity. The image below illustrates these points clearly.

Key Considerations

The decision to rent or buy will vary by individual financial circumstances. Buying isn't wise if the numbers don't add up for you. However, factoring in equity might tip the scales towards purchasing if you're financially prepared.

Conclusion

Ultimately, the ability to build equity through homeownership offers a financial benefit that renting cannot match. If you're considering how to leverage long-term appreciation in home values, discussing your options with our team at Pouliot Real Estate could be beneficial.

Call 207-248-6044 to be connected to an agent near you.

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