Renting may be cheaper than buying

In some markets, buying a house is not as good a value as renting a home

Buying and owning a home has long been considered a sign of status and success. Homeowners are no longer thought of as transients, but rather as part of a neighborhood. As nearly 70% of all Americans are now homeowners, it’s obvious that most people feel the same way. There’s a downside to buying a home, though. It’s expensive, and in some cities, prohibitively so. Some markets have seen housing prices triple in the last five years, and Phoenix saw housing prices increase 36% in the last twelve months alone. These incredible increases in property values, even as interest rates rise, have led many would-be homeowners to consider alternatives to buying.

One increasingly popular alternative may surprise people - renting a home. It may not seem like an obvious choice. After all, when you buy a house, you get something for your money. When you rent one, all you get is a place to stay for a month. You don’t own anything, and some would consider renting to simply be throwing money away. But in the current economic market, it sometimes makes sense.

In most times, the rates of rental property and property for sale rise and fall together. The explosive housing market of the last five years has changed that. In fact, at the moment, the average monthly mortgage payment nationwide is just about double the average payment paid by renters. Even worse, that average monthly mortgage payment takes up nearly half of the income of the average buyer. What this means is that, given current prices, many homeowners are having to really stretch to make that monthly payment and few have anything left after paying the bill for saving money or eliminating other debt. 

With rental, tenants are paying a much smaller portion of their income and therefore have more of a financial cushion.

The markets have a way of evening out over time, though. As more people begin to turn away from buying in order to rent, two things will happen. First, the price of housing will begin to drop as fewer potential customers are chasing more and more houses for sale. And two, rental prices will increase, as more and more people begin to chase fewer and fewer rental properties. In time, as always, the equilibrium point will be met again where renting and buying are about equally expensive for all.

In the meantime, many would-be home buyers are simply taking a wait and see attitude. They can spend less money on rent, save some in the meantime, and hope to buy a house when the market softens a bit and/or when they have a larger down payment available. In the meantime, they can enjoy some perks that few people who own houses can enjoy, including not having to pay the bill when the hot water heater or garbage disposal breaks down. Sometimes, it is better to rent than to buy.