REALTOR, FAITH NICOLE 5-MINUTE READ
JULY 7 2023

If you're currently renting, you're faced with a significant decision each year: whether to renew your lease, find a new place to rent, or take the leap into homeownership. Before diving too deep into your options, it's crucial to grasp the true costs associated with renting in the future.
Recent Statistics
Over the past year, both existing and new renters have experienced rent increases, as reported by realtor.com:
"A significant 74.2% of renters who moved in the last 12 months saw their rent rise. Even those who lived in their current rental for 12 to 24 months, and likely renewed their lease, weren't spared, with 63.2% reporting rent hikes."
This rising trend in rent prices is not entirely surprising when we look at historical data, which indicates that rents have consistently climbed since 1988.
If you are contemplating renting this year, it's worth considering whether this upward trend will persist. According to the 2023 Housing Forecast from realtor.com, rents are projected to increase by 6.3% in the coming year. While this projection appears less drastic compared to the previous two years, it still exceeds the historical average for rent hikes between 2013-2019.
Implementing Solutions
Considering the escalating rental costs, you might want to explore other alternatives, with homeownership being a viable option. Owning your own home provides stability, as you can lock in a fixed monthly cost for the duration of your mortgage. This way, you won't be susceptible to fluctuating rental prices. A fixed-rate mortgage ensures that your interest rate remains constant throughout the loan term, enabling you to budge and plan for the future.
Moreover, homeowners benefit from home equity, which has seen substantial growth. Recent data from CoreLogic reveals that the average homeowner gained $34,300 in equity over the last year. Unlike renters who solely cover the cost of their dwelling through rent payments, homeowners build wealth through the forced savings represented by home equity.
Let's break down the comparison between paying $2,000 in rent for one year and owning a $300,000 home with an appreciation rate of 7% annually.
Paying Rent. (Average 2br rate: $2,097) | Owning a Home. (Purchase Price: $300,000) 3br |
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Financial Comparison Summary
Money Lost Renting: $25,164
Money Gained Owning: $21,000
By renting, you lose $24,000 in payments that do not build any equity. By owning a home, you gain $21,000 in equity from home appreciation. The difference in financial outcome between renting and owning in this scenario is:
Net Difference: $25,164 (lost in rent) + $21,000 (missed equity opportunity) = $46,164 loss.
Therefore, in this example, the potential financial benefit of owning a home over renting for one year is $46,164.
Example 2)
Homeownership vs. Renting in Houston (5 Year Comparison)
This chart illustrates the potential growth of property equity compared to rising rent costs over five years in Houston, Texas.
Assumptions:
Initial home purchase price: $300,000
Average annual home appreciation rate: 7% (based on recent Houston market trends)
Average rent for 3-bedroom home: $2,210 (year of 2023) | Update, Average 3 br is $3,225 jan 29th 2025. Click to view my Market Analysis.
Average annual rent increase rate: 3% (based on recent Houston market trends)
Years | Home Value | Equity Growth | Monthly Rent | Total Rent Paid |
Year 1 | $300,000 | $21,000 | $2,210 | $26,520 |
Year 2 | $343,470 | $43,470 | $2,276 | $53,832 |
Year 3 | $367,512 | $67,512 | $2,344 | $81,960 |
Year 4 | $393,238 | $93,238 | $2,415 | $110,940 |
Year 5 | $420,765 | $120,765 | $2,487 | $140,784 |
In conclusion, if you're contemplating renting in the coming year, it's crucial to be aware of the true costs you might face. Exploring the option of homeownership could provide you with stability and the opportunity to grow your wealth through equity. Let's have a conversation to explore how you can embark on your journey to homeownership today.
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