Avoid the Rental Trap in 2023
Renters frequently have to choose between renewing their current lease, starting a new one, or purchasing a home each year. Nothing has changed this year. But it's a good idea to have a basic understanding of the true costs of renting going forward before you delve too deeply into your options.
According to data from realtor.com, both current renters and new renters experienced rent increases in the previous year:
“Three out of four renters (74.2%) who have moved in the past 12 months reported seeing their rent increase. The strain from recent rent hikes isn’t exclusive to renters who have recently moved. Nearly two-thirds of renters (63.2%) who have lived in their current rental between 12 and 24 months, and likely renewed their lease, have also reported increases in their rent.”
And that shouldn't be a surprise if you review earlier data. That's because rents have been steadily increasing since 1988, according to the Census (see graph below):
Therefore, it's important to examine whether this tendency is likely to continue if renting is something you're thinking about doing in 2023. The 2023 Housing Forecast from realtor.com expects rents will keep climbing (see graph below):
According to that forecast, rents would rise by 6.3% in the upcoming year (shown in green). When contrasted to the blue bars in the graph, it's evident that the 2023 estimate doesn't call for an increase as extreme as the ones renters have seen over the last two years, but it's still over the historical average for rent hikes between 2013-2019.
As a result, if you intend to rent again this year but haven't yet renewed your lease, you may end up paying extra.
Homeownership Offers a Contraption to Increasing Rents
You might reevaluate your options in light of these escalating expenditures. It might be time to put homeownership first if you want to have more stability. Owning a home gives you a reliable monthly expense that you can lock in for the life of your loan, which is just one of the numerous advantages. According to Freddie Mac
“Monthly rent payments may increase over time, but a fixed-rate mortgage will ensure that you're paying the same amount each month. With a fixed-rate mortgage, your interest rate is locked in for the life of loan. Steady payments allow you to budget wisely and make plans for the future.”
Locking in your monthly housing payments for the life of your loan can be a huge benefit if you're intending to move this year. I'm sure you've heard of it, but I'm sure you've never heard of it before. I'm sure you've never heard of it because I've never heard of it.
Homeowners also have the added benefit of house equity, which has expanded dramatically. According to CoreLogic's most recent Homeowner Equity Insight study, the average homeowner actually increased their equity over the previous year by $34,300. Your rent payment as a tenant solely goes toward the cost of your home. When you pay off a mortgage on a property, the forced savings that is your home equity help you increase your wealth.
To sum up
It's crucial to consider your actual costs if you're considering renting this year. Let's discuss how you can start the process of becoming a homeowner right away.