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Is now a good time to buy a house or should you continue renting?

What we'll cover

  • What to consider before purchasing a home in the current market

  • How to analyze your goals and finances in the current housing market

  • The path to homeownership

If you’re renting, you know there’s a lot to love about this living arrangement. Whether it’s a leaky faucet or refrigerator that suddenly goes out, knowing it’s your landlord’s responsibility — and not yours — can be a major advantage of living the rental life.

Still, there comes a time in many renters’ lives when they start to daydream about home ownership. Maybe you want more room for your growing family or you love the idea of taking a fixer upper and making it yours.

A home is likely one of the largest and most important purchases you’ll ever make. If you’re a renter and have been thinking about starting your homebuying journey , you may wonder if the time is right.

Mind market conditions

The recent housing market has been competitive, marked by high home prices and bidding wars , which understandably makes the prospect of making a purchase feel daunting.

But as the temperature began to drop around much of the country, the market has shown signs of cooling off as well, giving prospective homebuyers a little more confidence.

While the number of homes for sale is still historically low, the situation is slowly improving. In August 2021, the number of homes for sale decreased by 26.8% compared to last year. By September, that decrease dropped to less than a quarter — an encouraging sign more owners are listing their homes.

Home prices are also showing signs of moderation but are still high compared to historical averages. The median listing price has grown by 8.6% over the last year, meaning a home that was priced at $200,000 last year is listed closer to $220,000 in 2021.

More small homes — popular among first-time homebuyers — are on the market this year, but are now more expensive as well, with the median listing price for a typical 2,000 square-foot home up 17.1% since last year.

Compare to rising rents

High home prices may tempt you to think renting is the more affordable opinion. But almost everywhere you look, rent is going up, too. Since January 2021, the national median rent has increased by 16.4%, compared to the years 2017-2019, when it grew by just 3.2%.

Depending on your location, renting may be more expensive than buying.

When considering whether to continue renting or purchasing a home, though, it’s important to look at the home price-to-rent ratio, which is calculated by dividing the median home price by the median yearly rent. For example, let’s say the average price of a house for sale in your area is $300,000, and the average rent in the same area is $2,000 a month. The price-to-rent ratio is 12.5%.

A good rule of thumb is if the price-to-rent ratio is 15 or less it's probably better to buy, and if it’s 21 or more then it’s likely more ideal to rent.

High home prices may tempt you to think renting is the more affordable opinion. But almost everywhere you look, rent is going up, too.

Don’t forget additional expenses

When calculating the true price of a home, you need to think about more than your down payment and the monthly mortgage. The true cost of home ownership also encompasses additional costs such as the appraisal fee , inspection fee , closing costs, property tax, homeowner’s insurance, HOA fees, maintenance and utilities. Don’t forget to account for all of these when weighing whether you should continue to rent or buy.

Factor in your finances

In addition to affordability, you’ll want to take a look at your overall financial situation to determine if you’re ready to buy a home . Your credit score, debt-to-income ratio, and your down payment amount will all have an impact on the home loans you will qualify for. You’ll want to conduct a thorough review of where you stand before you begin applying for a mortgage.

If you feel ready to buy but one or more financial factors are holding you back, you may want to consider a rent-to-own home .

Beyond dollars and cents — analyze your goals

While calculating the home price-to-rent ratio is a useful guideline, time is a factor as well. On average, purchasing a home is the cheaper option after five years. So, how long you plan to stay in your current residence should be a consideration when making your decision.

What you want out of the place you hang your hat matters, too. As a homeowner, you’re on the hook for any major repairs that might arise (i.e. a new furnace, broken refrigerator or leaky roof). While you don’t have to worry about those extra expenses as a renter, you’re also usually limited in the types of upgrades you can make. For instance, as a renter you typically can’t swap out carpet for hardwood floors or replace bathroom fixtures.

Renting offers more mobile flexibility, so if you want the freedom to try out a new city or experiment with a different climate, renting probably makes more sense for your current lifestyle. On the other hand, if you’re eager to start a family and your neighborhood really feels like your community, buying a home can offer you the stability you need.

Should you stay or should you go?

Buying a home is a major decision that should not be taken lightly. Becoming a homeowner involves a lot of choices and responsibility — but it can come with a lot of rewards, too.

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