Is It Better To Rent Than Buy a Home Right Now?

Have you seen recent news reports claiming better affordability for renting in the current Kansas City housing market? While there is some truth to this, looking at typical monthly payments reveals one crucial factor the numbers aren't considering: home equity. Let's look at home equity's significant impact and why it's worth considering as you decide whether to buy a KC home right now.

What Data Are The Headlines Based On?

The graph below uses national data from Realtor.com and the National Association of Realtors (NAR) to compare median rental and mortgage payments. The graph shows it can be more affordable to rent every month, especially if you're not looking for a lot of space:

 

However, suppose you're looking for something with two or more bedrooms. In that case, the gap between the median rent and mortgage payment closes to a difference that may be more manageable for many Kansas City homebuyers. With the national median monthly mortgage payment at $2,040 and the average monthly rent for two bedrooms at $1,889, there's only a difference of about $151 a month. So, what happens when you factor in equity?

How Home Equity Changes the Game

In a rental, monthly payments only cover housing costs and your landlord's expenses. Other than saving a bit more per month and possibly getting your rental deposit back when you move, the money you spend on housing each month is gone—forever.

As a Kansas City homeowner, your monthly mortgage payment not only pays for your shelter but also acts as an investment. This investment grows in the form of home equity as you make your mortgage payment each month and chip away at what you owe on your home loan. Your equity will acquire an extra boost as KC home values climb – which they usually do.

Let's look at some recent real estate data to get a clearer idea of how equity can really stack up fast. Each quarter, Fannie Mae and Pulsenomics publish the results of the Home Price Expectations Survey (HPES). They survey over 100 economists, real estate professionals, and investment and market strategists about what they think will happen with national home prices. In the most recent release, these experts predict home prices will keep increasing over the next five years.

Here's an example of how equity builds based on projections from the HPES (see graph below):

Imagine you bought a home in the Kansas City area for $400,000 at the beginning of this year. Since you purchased a home, you likely plan to stay put for a while. The HPES projections show that living in that home for five years could mean gaining over $83,000 in household wealth as your home grows in value.

How does that stack up compared to renting? Using the overall median rent from above, this is how the numbers compare:

 

While renting right now may save you a bit on your monthly payments, you'll also miss out on gaining equity in the long run.

So, what's the big takeaway? Kansas City homebuyers need to determine whether it makes more sense to rent or buy based on their personal finances. It's not a good idea to buy if the numbers truly don't work for you, but adding equity as the final puzzle piece may be enough to help you realize that buying is a better move in the long run. Working with a Just Say Home real estate agent can help you know if you're ready and able to buy a home in the current Kansas City housing market.

Bottom Line

Purchasing a Kansas City home carries a benefit that renting just can't provide – the chance to gain equity. Do you want to take advantage of long-term home price appreciation? The Just Say Home real estate experts can help you analyze your options to make the best decision for you and your loved ones.

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