If your rental lease is expiring in 2023, show you renew? Rents will likely go up but so are interest rates. So what should you do? Before you answer that question, you should understand the true costs of renting moving forward.
In the past year, rents have increased. According to realtor.com
“Three out of four renters (74.2%) who have moved in the past 12 months reported seeing their rent increase. The strain from recent rent hikes isn’t exclusive to renters who have recently moved. Nearly two-thirds of renters (63.2%) who have lived in their current rental between 12 and 24 months, and likely renewed their lease, have also reported increases in their rent.”
And historically, that's what we should expect. The Census shows us rents have been rising consistently since 1988 (see graph below):
So, if you’re undecided about whether to sign a new lease or to buy a home in 2023, just know re-upping with your landlord will likely cost you more, just like in years past. The 2023 Housing Forecast from realtor.com expects rents will keep climbing (see graph below):
According to this bar graph published by the real estate site Keeping Current Matters, rents are projected to increase by 6.3% in 2023 (shown in green). Compared to the most recent years, that projection isn't as bad as we've seen, but it’s still above the historical average for rent hikes between 2013-2019.
That means, if you’re planning to rent again this year and you’ve not yet renewed your lease, you may pay more when you do.
Homeownership Provides an Alternative to Rising Rents
But there are alternatives, such as purchasing a home. One of the many benefits of owning your own home is it provides a stable monthly cost. You can lock in a loan rate for decades, which provides a predictable cost of shelter. As Freddie Mac says:
“Monthly rent payments may increase over time, but a fixed-rate mortgage will ensure that you’re paying the same amount each month. With a fixed-rate mortgage, your interest rate is locked in for the life of loan. Steady payments allow you to budget wisely and make plans for the future.”
To some qualified buyers, that makes sense! A locked-in loan rate of 10, 15, 20 or even 30 years allows you to avoid any housing increases imposed by your landlord.
And, as a homeowner, you enjoy the added benefit of home equity. Homeowner Equity Insight reports the average homeowner gained $34,300 in equity over the last 12 months. As a renter, your rent payment helps your landlord get rich. When you pay your mortgage on a house, you grow your wealth through the forced savings that is your home equity.
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