The new year has arrived. And as the end of the financial year draws close, as a renter, you are weighed with three important questions.
Do you renew your rent and once again give away a huge chunk of your paycheck to stay?
Do you look for a new place?
Or do you finally take a plunge and buy a new home?
The Accelerating Trend of Increasing Rents
Rent increased last year – and considering the impact of inflation, that increase shows no signs of slowing down. Realtor.com reports that nearly 75% of all renters said they were asked to pay more in the past 12 months. And this increase isn’t limited to the new renters.
Existing renters also had to answer the door to see their landlords asking for more money. Over 63.2% of the renters who have renewed their lease feel this way. But don’t be alarmed by this increase, for this rising trend in rent costs is decades old. Census data shows that the rents have been growing steadily since 1988.
However, the increase has been steep since 2011.
Therefore, for those considering renewing their lease, it is important to know how much increase in rent you will likely experience this year.
Realtor.com’s Housing forecast in the graph below is a good place to understand the pace at which rent will grow this year. There is only a 6.3% growth in rental costs in 2023, which is marginally lower than 2022 and nearly half of 2021 – which had an increase of 10%. So, the good news is that the rent rate growth has slowed down, but the bad news is that there is still an increase. It means if you decide to renew your lease, there is almost a guarantee that you will end up paying more than you did last year.
And in the current financial ecosystem, you need to find better ways to secure your future. And you do this by increasing your equity – which home ownership can give to you.
Own a Home to Combat the Impact of Rising Rents
Looking at the past trends clearly shows that while the rate of rent rate growth may subside, the increase will always be there. Unfortunately, you can’t say the same for your paycheck, which is why it is better to prioritize homeownership. With home ownership, you get a place to call your own. But the financial benefit of this move matters a lot more.
Freddie Mac puts it best. “While the monthly rent payments will increase overtime, fixed rate mortgage will remain the same.” And unlike rent, mortgage payments have an end date. One day, you will pay off your home, and it will truly become your own. And even till then, the fixed-mortgage payment won’t have you run for the hills and re-strategize your finances every year just to accommodate the increased rent.
So, for this year, focus on owning a home and locking your monthly mortgage costs for the duration of your loan.
Another big benefit of this move is home equity. The future is uncertain, and you need to build more wealth. "With Home Equity, an average homeowner has gained $34,300 more equity in the last four months," - a report by Homeowner Equity Insight by CoreLogic says. With rent, you pay to dwell, but with a mortgage, you pay to own.
Bottom Line
If renewing your lease or finding another place to rent is your goal this year, be aware of the true cost that you may face. Reach out to your local real estate agent today and take the first step toward owning a home.
