As mortgage rates continue to fall, buying power is increasing in the U.S. Despite a lower number of homes for sale compared to previous years, many renters are turning to home-buying — leaving a big vacancy in the renter’s market.
San Francisco is a prime example. Vacancy rates have more than doubled, and prices are down. Before 2020, San Francisco was home to some of the highest rents in the U.S., with an exorbitant high demand for housing.
With all the perks of city life paused due to the pandemic, many can’t justify the high rent. The spike in supply offers more choices and lower prices for the prospective renter — a unique position of power for a typically competitive market. Though buying a home right now may be tempting, there are many reasons why choosing to rent can be the best financial move for you.
1. Buying a house is expensive
Even though mortgage rates are hitting record lows, buying a house is still very expensive. It could be unwise to jump the gun to take advantage of a low rate — especially during such a time of economic turmoil.
The purchasing process alone incurs huge fees and commitment. Matt Hyland, a financial planner at Arnold and Mote Wealth Management, highlighted that “Between closing costs, realtor fees, and home appraisals and inspections, you will likely pay tens of thousands of dollars when you need to buy or sell your home.”
[ Read: Compare Best Mortgage Rates for December 2020 ]
Renting can save you money in many ways on day-to-day expenses too — property taxes, homeowners insurance, utilities and maintenance. Hyland also told us that, “Owning a home leaves you vulnerable for large expenses that can arise out of nowhere.”
For those without large emergency savings, or with reduced or irregular income, he adds, “renting isolates you from these large one-time expenses that can arise. If the thought of forking over $ 5,000 for a new HVAC, or a new roof scares you right now, renting might be a better option for you.”
Renting may also throw in extra amenities that could save you money. A fitness center, pool, dog park and other amenities you may otherwise pay for are often included when renting an apartment.
2. It’s a seller’s market right now
Even if you’re approved for a great mortgage rate, buying a home right now can get competitive. It’s a seller’s market, so houses are more expensive and many listings will go to a bidding war. You may have fewer options on the market, not end up scoring the house you love or feeling rushed to make a purchase because of how quickly homes are selling.
[ Read: About to Close on a House? Avoid These 9 First-Time Homebuyer Mistakes ]
Jonathan Faccone, managing member and founder of Halo Homebuyers, says, “Some homebuyers have decided to wait it out, others simply can’t find anything available to their liking, while others are consistently being outbid.” According to Faccone, even agents advice prospective buyers to wait out the hot seller’s market to be over.
“It might be the most financially prudent decision despite this low-interest-rate environment. Renting can allow you to wait for better deals and pricing, as well as help save up for a larger down payment.”
3. You can live anywhere
There’s a lot of uncertainty for people about when they’ll return to work. Some young professionals are taking advantage of the remote work structure and moving from urban centers — Apartment List reports that Honolulu is the number one place searched for short-term apartments in the past six months. But because renters don’t know when officers will reopen and if they’ll need to relocate again, long-term leasing or buying a house isn’t practical.
[ Read: Does It Make Sense to Never Own a Home? ]
Hyland says this transient lifestyle appeals to young professionals in particular, “who tend to move more often as their careers progress. In today’s age of remote work, I think this makes renting even more advantageous.” A crucial question Hyland points to is, “If you will be allowed to work from anywhere, would you continue to live where you are now?”
“Until we enter a new normal, renting provides you with the flexibility to make changes to your living arrangement much easier than if you owned a home.”
But If you’re planning to rent, keep this in mind
Emile L’Eplattenier, Chief Real Estate Analyst for The Close, did warn us that not every deal is as impressive as it seems for renters, “there are certain to be once-in-a-decade opportunities for renters to trade up to larger, and nicer apartments since vacancy rates are high right now.”
[ Read: How to Negotiate Rent With Your Landlord ]
In this case, renters should be aware of rent-free periods offered by landlords. “While the overall outlay for the year may indeed be attractive, any rent increase will be based on the ‘gross’ rent, which is the actual rent minus any free months.”
Too long, didn’t read?
If you’re a renter, don’t hesitate to seize the moment. As people continue to move away from urban spots, leases will continue to expire and more units will come to the market. Take a good look at your finances and what your goals are for the next year before committing to a home purchase. Renting can save you money and allow for a flexible living situation.
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