What Are the Real Costs of Renting?

 

Homeownership is not for everyone. Is that a bad thing and what does it cost in the long run?

 

There are times when homeownership makes sense, but is this one of those times? For many, the combination of inflation, high-interest rates, and steadily increasing home prices has put homebuying plans on hold, especially for Millennials and Gen Z buyers who have less purchasing power due to lower incomes, more debt, and less equity.

 

In a pricey area like ours, the pinch is even worse. The DC area’s cost of living was reported this spring to be 53% higher than the national average, while the housing portion of overall costs was a whopping 144% higher. Combined with a growing population that hasn’t kept pace with housing inventory, the supply-and-demand pressure continues to keep rents high, although there are some signs the climb may be leveling. In August it was reported that the average monthly rent in DC was $1,901/month, Virginia was $1,594, and Maryland was $1,741.

 

About 40% of the DC metro area is made up of renters and a growing number of them report spending more than half of their monthly income on rent. A November report from the Virginia Association of REALTORS® showed that compared with homeowners, renters are carrying more than two times higher housing costs. Data from the Census Bureau indicates that as of 2022 about 50% of renters were housing cost-burdened in Virginia, while only 20% of homeowners were housing cost-burdened (meaning 30% or more of monthly income was going toward housing costs).

 

But even with the financial burdens that renting can bring, it may be better for some in the long run to stay in tenancy. Because while rental prices have climbed, so have purchase prices. High list prices coupled with high-interest rates mean it now costs 52% more to own a home than to rent.

 

Here are a few things to consider when deciding which is the better path for you right now. Because the market can and will shift, and “timing the market” is rarely a successful strategy.

 

How long do you plan to stay in the home?

If it’s less than 5-7 years, it makes more sense to rent and invest cash elsewhere. Use a rent ratio calculator to determine your relative cost of renting versus buying.

 

How steady is your income?

Annual rent increases can be unpredictable and plenty of tenants have been surprised by a sudden unexpected hike. For the most part, mortgage payments are consistent over the term of the loan (allocating for increases in taxes, insurance, and amenity fees) and easier to budget around in the long term.

 

What is your budget (or patience!) for home repairs?

As a renter, home maintenance costs are borne by the landlord. If something goes wrong, you pick up the phone and someone else takes care of it. As a homeowner, you can expect to pay about 1% of the home’s purchase price every year toward home maintenance. But there are also big-ticket repairs – like a new roof, appliance upgrades, and systems repairs – that will unexpectedly take a bite out of your budget.

 

What is your lifestyle?

Do you like exploring new neighborhoods? Are you a traveler and want the flexibility of trying on a new city for a while? Could a major life milestone be on the horizon? Do you simply want a low-maintenance living situation? Renting offers many benefits for people who don’t want to be tied to the responsibility of paying for and maintaining a home

 

The National Association of REALTORS® has many resources to help decide if homeownership is the right move and where to find first-time homebuyer assistance, as well as reporting relevant data to understand current market dynamics.

 

And, when you’re ready to find a fantastic new rental or take the first step toward homeownership, be sure to contact me so I can help you achieve your goal!