With the winter housing market still being as competitive as it is today, it may be tempting to forgo purchasing and sign a lease for another year. However, while renting may seem like a simple solution, there are important factors to keep in mind such as what the experts are predicting the true cost of renting will be in 2022.
Let’s Take a Look Back at 2021
To help us better understand the rental situation that we’re facing today, let’s take a look back at the trends that we saw the past year. According to ApartmentList.com, the national median rent increased by 17.8% over the course of 2021. For context, the annual rent growth averaged just 2.3% in the pre-pandemic years from 2017-2019. Although the early stages of the pandemic led to a slight decline in rents throughout 2020 (01.6%), the growth of 2021 made up for any lost ground. Additionally, the national median rent is now $1,309, which is $119 greater than what the experts would have projected if rent growth since the beginning of the pandemic would have been in line with the growth rates of 2018 and 1019.
With the massive rent increase that we saw in 2021, you might be wondering if 2022 is predicted to tell a similar story. According to the 2022 National Housing Forecast from realtor..com, rents are expected to continue to grow throughout the year. Experts at realtor..com forecast rent growth of 7.1% in the next 12 months, which is somewhat ahead of home price growth. This growth can be attributed to a couple of factors. First, Realtor.com indicates that there may be hiring demand for those who moved to live with their families during the pandemic and now wish to live alone again. On the supply side, Realtor.com points out that in addition to material shortages and higher labor costs, hampering construction on new rental homes, the termination of eviction protection laws may give landlords a chance to recoup their losses that they experienced earlier in the pandemic by raising prices. Alternatively, they could choose to sell their rental home and exit the rental business. This may be good for homebuyers, but would further reduce the supply of homes available for renters.
This means that if you decide to move into a different rental in 2022, you are likely going to pay more than you have in the past years.
How to Forego the Rental Trap
Unlike when you own a home, there is no financial benefit of paying your landlord your monthly living expenses. The money you pay for rent goes directly into your landlord’s pockets, giving you no opportunity to build equity. By continuing to rent in 2022, you’re signing yourself up to pay more for no financial gain. Alternatively, you could consider making the job to become a homeowner. One of the many benefits of owning a home is a stable monthly cost that you get to lock in for the duration of your home. While your home appreciates, you can take comfort in knowing that your monthly cost will remain fixed and you won’t have to adjust your budget to account for annual increases. This isn’t the case for those who rent.
Additionally, by owning, you’ll be paying into your own wealth. When you own, you can look at paying your mortgage as forced savings that turn into home equity. You’re not losing money by paying a mortgage, in fact, you’re investing it into something that is sure to build over the years. According to the Homeowner Equity Insight report from CoreLogic, the average homeowner gained $56,700 in equity over the last 12 months. So, when you think about how much it costs to rent vs own, it's important to keep equity in the equation.
While home prices are rising, rents are also increasing. If you’re thinking about signing up for a lease for another year, it’s important to consider what you might be paying. Additionally, it’s important to consider what you’re missing out on by paying rent vs a mortgage. It’s not just the direct out-of-pocket costs, but also the amount of equity you might be missing out on that’s important to keep in mind. It may seem easier to hold off on purchasing and opt to rent for another year, but in reality, you may be paying more and missing out on a huge opportunity. If you’re on the fence, talk to a trusted real estate agent about what you’re comfortable with paying monthly for your rent, and what that could translate into in terms of purchasing a home. You may be surprised to learn that owning a home is more doable than you think.