__It’s often said that paying rent is just throwing money away, but is that really true?__

It has no doubt been true in the past, but it may be less the case today. In fact, some analysts are saying it actually makes financial sense to rent, versus buying a house— at least for now. Here’s why:

We’re still feeling the impact of the COVID pandemic. It caused massive disruptions in supply chains and big spikes in building costs. Housing inventories fell, demand rose, and home prices have, well, gone through the roof.

Meanwhile, young adults were trying to move out of their parents’ homes and set up house for themselves. Rental rates also rose. In the age-old debate, rent vs. buy, things shifted toward renting.

To many, paying a landlord now seems like a better deal than paying a mortgage company, with skyhigh interest rates and stubborn inflation. In fact, according to the real estate investment firm [CBRE](https://www.chartr.co/newsletters/2023-10-23), it’s never made less sense for first time home buyers to make the leap into ownership.

CBRE’s research shows that average new monthly mortgage payments are now *52% higher* than the average rent for an apartment. That difference is the highest in the 27 years CBRE has been doing this research.

__Many first time home buyers have been priced out of the market. According to the [National Association of Realtors](https://www.thezebra.com/resources/home/average-age-of-first-time-homebuyers/#:~:text=This%20is%20up%20from%2033,for%2050%25%20of%20all%20homebuyers.), in 2022, the last year this statistic is available, only 26% of buyers were first timers. That’s the lowest percentage since they began tracking those numbers.__

Home values are expected to moderate, at least that’s what the experts say, but that probably won’t mean they’ll actually decline. It’s more likely they’ll just stop *increasing* so dramatically. Some analysts say we’ve reached “peak unaffordability.”

High mortgage rates are supposed to bring values down, but that hasn’t happened due to the continuing low inventory. There just aren’t that many houses on the market and that’s keeping prices firm in most places.

It’s tempting to say that rental rates are a bright spot in this picture, but they really aren’t. They’re lower now only when compared to average new mortgage payments, because rents *also* increased a lot in the last few years, just not as dramatically as mortgage payments.

For what seemed like decades, Americans heard that buying a home was the smart way to go and that continuing to rent was just a waste of money, because paying rent doesn’t build equity, while making mortgage payments does*.*

That’s now been flipped around. The new “value option,” at least for the time being, is to continue paying rent and sit on the sidelines of the home buying game until interest rates come down and inventory goes up.

__It’s interesting to note that analysts aren’t sure at this point where the rent vs. buy debate is heading. Will rents rise to meet mortgage payments? Or will mortgage payments drop to meet rental rates?__

If you’re one of the many “wanna-be” first time home buyers and you’re wondering if you’ll ever be able to buy a house, you can take some comfort in knowing that the free market will always correct itself. If there aren’t enough houses, builders will build more. If the cost of materials is too high, competition and increased production will bring those prices down.

If interest rates are too high, the economy will slow. Interest rates will be adjusted downward. If no one buys houses, lowering demand, eventually prices will come down, or at least stop increasing. Those things *will* happen— it’s just a question of when.

In the meantime, you have work to do. __There are three important steps you can take to bring yourself closer to buying a house, while you continue to rent.__

- __Pay off your credit cards and make extra payments on your car loan if you have one.__ That reduces your debt to income ratio. The less debt you have, the more likely you are to get a loan— and at a better interest rate.
- __Make every payment on time.__ Check your credit reports for errors and dispute any you find. Bring your credit score up as much as possible. That will also help you get a lower interest rate, which will make your monthly mortgage payments more affordable when you *do* buy.
- __Save, save, save.__ Put as much as you can in the bank, in liquid savings, for your down payment. We always recommend 20% of the sale price. That way you’ll avoid having to pay private mortgage insurance— which will *also* lower your monthly payment and save you a small fortune over time.

__This really just means following God’s financial principles and waiting to see what He will do. Romans 12:12 reads, *“Rejoice in hope, be patient in tribulation, be constant in prayer.”*__

You can also __[listen](https://www.faithfi.com/search?q=The%20Housing%20Market:%20Rent%20or%20Buy?&videos=true&articles=true&podcasts=true&posts=true&groups=true&events=true&support=true)__ to the related podcast on this topic.

FaithFi

Articles

It’s often said that paying rent is just throwing money away, but is that really true?

MANAGE | Dec 26, 2024

The Housing Market: Rent or Buy?

By: Jim Henry

Where Faith Meets Finance

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