A “for rent” sign outside a house.
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Rents are expected to grow more than home prices in 2023, according to Realtor.com.
But mortgage rates are also expected to grow, potentially negating any advantages to buying.
Renters thinking about buying in 2023 should think twice and consider their monthly payments.
The age-long debate on whether it’s better to rent or buy a home won’t get any easier in 2023.
Home prices are starting to fall in some areas. However, mortgage rates are expected to rise more than they already have this year. A 2023 housing forecast from Realtor.com predicted a 7.4% average for mortgage rates in 2023, which would push homebuyers’ monthly payments up and generally make homeownership more costly.
Realtor.com economists also predict, however, that rents nationwide will increase by 6.3%, while they expect median home prices to grow by 5.4%. The forecast from Realtor.com did not include prices, but to give some context, Redfin’s rental-market tracker found the median monthly rent in October was $1,983 — a 6.3% increase would bring that to $2,108. The median home price in the third quarter of 2022 was $454,900, according to the Federal Reserve Bank of St. Louis. A 5.4% jump means a typical US home would cost $479,464.
“We found that even though rents were going up, because home prices — and more importantly, mortgages — had gone up, the cost of buying had gone up even more,” Danielle Hale, the chief economist at Realtor.com, told Insider.
So presuming that both renting and buying become even more expensive, the decision becomes a little more complicated in 2023. Ultimately, next year, rents are going to increase at a higher rate than home prices, but buying a home comes with its own financial baggage. The truth hurts: You’re going to be paying more for housing in 2023, whichever path you choose.
Increased monthly costs often tempt renters to look seriously into making the leap to homeownership.
“That is faster rent growth than we’ve seen historically,” Hale said. “It’s certainly enough to get some renters thinking about it.”
And think they should. According to Realtor.com, mortgage payments will likely increase by 28% in 2023, making the typical monthly payment about $2,430.
Data from John Burns Real Estate Consulting, a real-estate consulting firm, shows the monthly costs of owning versus renting a home were “virtually identical” in 2021. However, owning a home now costs $839 more than renting one per month.
The situation was reversed between 2013 and 2019, according to data from Realtor.com, when home prices increased by 6.4% and rents increased by 5%.
Jay Parsons, the head of economics for the real-estate-technology platform RealPage, shared the data from John Burns on LinkedIn.
The discount to rent has never been bigger, he added.
“With higher mortgage rates and high home prices, basically, that cost to get into homeownership is now much higher than renting,” Parsons told Insider.
For renters, a 6.3% increase in rent is not ideal, but the alternative might be worse.
“I don’t think one year of rent increases is enough to push anyone into the ‘I have to buy right now’ camp,” Hale said.