Barely a month into the new year, it’s safe to say trends in the real estate market have been anything but predictable. There have been significant shifts in the housing market over the last year, bringing new considerations into the age-old question, is it better to rent your next property or buy?
An individual’s financial situation is the most important factor in the decision of renting vs. buying. It is wise, if not necessary, to have an emergency fund containing a minimum of six months of living expenses when considering homeownership. In the long-term, with proper maintenance a home can be a valuable appreciating asset, meaning you can expect to see a decent return on your investment.
Similarly, the longer you stay in your home, the more equity you are able to obtain. According to Black Knight, homeowners in the U.S. had $6.6 trillion in equity borrowing potential in the second quarter of 2020. Borrowing against your home is a great way to pay for home renovations or any other unexpected expenses.
With all investments comes risk. Local economic conditions can negatively impact the home’s value, resulting in depreciation. Unlike renting, the homeowner is responsible for 100% of the financial responsibilities that come with maintaining the home, which can become extremely costly depending on the nature of the repair.
Location is of paramount importance in the renting vs. buying decision. For homeowners, location directly affects the market-growth rate, and amenities such as school districts, hospitals, parks and greenspaces all play a role in potential appreciation of the home.
The mass departure of residents away from urban, densely populated areas such as New York, Chicago and Los Angeles has accelerated homeownership in suburban communities. Due to this shift, rental rates in these highly populated areas are as affordable as they have been in over a decade in an attempt to incentivize renters.
It is uncertain if those who transitioned into suburban communities intend to avoid the renter’s market permanently, but if one is looking into starting a new chapter in a once impenetrable market such as New York City, this is the best time to consider renting.