Is it Better to Rent or Buy? Market Fluctuations Matter

Is it better to rent or buy? There is no simple answer to the question, yet it’s something we all ask ourselves at some point in our adult lives.

When you ask yourself this question, you’re not just determining whether it’s more affordable to buy or rent. Rather, you’re answering questions about what your life will look like in the coming years--in terms of both lifestyle and location.

In this article, we’re going to talk about the issue of buying vs renting. We’ll talk about ways you can educate yourself to make the most informed decision possible. After all, whether you’re buying a home or signing a lease, this is a decision that will affect a large amount of your time and dictate at least the next year of your life.

Outside influences

Before you start thinking about mortgages and leases, it’s a good idea to get an idea of the market. Specifically, you’ll want to look at the cost of living for the area you plan on moving to. It may seem like common sense that the cost of apartments and houses will rise and fall at the same rate, but evidence points to the contrary.

Elements that are out of your control could be things like:

• Property tax amounts

• Inflation and cost of living changes (gas, utilities, etc.)

• Stock market variations, which affect your investments

• Real estate market changes

• Income changes (job change or loss)

As you can see already, these outside influences have the potential to make a huge impact on whether it makes more sense to rent or buy.

Let’s say you decided to rent a home and put the money you would have used for a down payment into an investment fund. You have a good year and earn 5% on your investments. At the same time, the price of homes as gone down significantly in the area you hope to move.

As you can see, in this scenario it would probably make sense to pay rent for a year before buying a home.

Out-of-pocket expenses and equity

One of the biggest advantages of owning a home is that by definition, if you are making sufficient and timely mortgage payments, you are earning equity. Equity can be used later to make a down payment on a larger home, or for selling to use toward retirement funds later in life.

On the other hand, renting is an out-of-pocket cost that comes at a loss. Once you pay rent, there is no getting it back to use later on.

It may seem like buying is the obvious solution, then. However, there are also many out-of-pocket costs for owning a home. Property taxes, insurance, and interest paid to your lender are all things that you can’t recuperate.

Finding out whether it’s cheaper to buy or rent will come down to balancing those factors, and weighing them against the odds of the real estate market.