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Maybe you’re staring at a lease renewal and feeling… unsure.
Deciding whether to rent or buy a house is rarely a no-brainer, but the choice may seem especially murky right now. Rents are slowly drifting down, but mortgage rates are finally losing a bit of altitude, too, and the real estate market isn’t nearly as frenzied as it was after the pandemic sent everything into overdrive.
In other words, buying may be getting at least a little more affordable, but is it enough to tip the scales, especially if rents keep dropping?
Here’s what math to do — and the factors to weigh.
How to Decide
First off, buying not only requires a significant down payment but a monthly payment that’s often higher than renting. So a purchase may just not be feasible for you right now. (And if it isn’t, you’d be in good company.)
If you think buying might be an option, however, you’ll want to consider not just your budget and credit record, but what’s happening in your local market (which can be very different from the national picture) and, very importantly, how long you expect to stay put.
“One of the key considerations is your breakeven period,” said Brian Walsh, Head of Advice & Planning at SoFi. “If you buy, do you plan on living there long enough to reap the benefits? It can often take 5 to 10 years to breakeven on the down payment and closing costs, but with current home prices and interest rates, this has gotten longer.”
Calculating Break Even
Determining when you would breakeven is core to deciding whether to buy or rent. Essentially, you want to know you’ll live in your house until your cumulative investment in it — including those initial upfront costs — would pay off if you were to sell it.
An online rent-vs-buy calculator can figure this out by comparing the total cost of buying versus renting after one year, two years, 10 years, and so on. It’ll factor in things like property price appreciation and the opportunity cost of tying your down payment up in a house rather than investing it, showing where you’d stand on the two parallel paths over time.
Just input the monthly rent you’re paying and an estimated purchase price and down payment (most calculators will have defaults for prevailing mortgage rates and estimated taxes, insurance, etc., but you can usually change those too.) Then it will estimate how far in the future you would profit from owning.
For example, if you’re renting an apartment for $1,700/month and are weighing whether to buy a $385,000 home with a 10% down payment at a 6.25% mortgage rate, Realtor.com’s calculator says you’d have to live there for nine years before you’d get more out of the purchase than the rental, assuming a 4% price appreciation.
Pro tip: There are many rent-vs-buy calculators available, all with varying input options, levels of detail, and customization. It’s worth poking around on Google to see what’s out there — and which you find easiest and most helpful to use.
Besides the breakeven point, you’ll want to weigh a mix of factors, including market conditions and where you are (and want) in your life.
Reasons to Rent
• Rents are subsiding: The median asking rent for a 0–2 bedroom unit in a large metro area continues to edge down, falling to $1,696 a month in October, according to Realtor.com data. That’s 3.6% lower than the 2022 peak (though still 17% higher than before the pandemic,) and economists expect the downward trend to continue next year — especially in the South and West — thanks to a boom in new construction.
• Lower up-front costs: Renting usually involves just a security deposit and first month’s rent — much less than is needed for a 5%-20% down payment and closing costs on a house.
• More flexibility: Renting is probably the best option if you might move in the next few years or aren’t sure whether your income or circumstances could change. (And you want enough time to benefit from those higher upfront costs if you buy.)
• No insurance, property taxes, or maintenance costs: Renting means avoiding more than just a mortgage payment. An analysis by Zillow and Thumbtack found insurance, property taxes, and maintenance now cost homeowners an average of .
• You don’t have to worry about property values: When you buy, you’re making a bet that the value of your investment will go up rather than down. Avoiding this risk is a significant benefit, especially if you’re unsure how long you’re going to stay put.
Reasons to Buy
• The chance to build equity: This is the reason to buy, right? Your rent payments don’t do anything for you after you make them, but when you buy, you’re building equity in (i.e. ownership of) your home. Your equity grows as you pay down the balance of your mortgage and if/when the value of your home increases. Many current homeowners have seen it surge since the pandemic spike in property prices.
• Mortgage rates have eased up: The rate on a new 30-year fixed mortgage averaged 6.19% last week, which is still twice what it was in 2020 and 2021, but essentially the lowest it’s been in over a year. And that could theoretically be as good as it gets for a while, with the Mortgage Bankers Association forecasting that rates will hold in the mid-6% range through 2028.
• Buyers are gaining leverage: After the pandemic triggered an acute shortage in available properties, the volume of listings is back to normal in many parts of the South and Western U.S., taking the edge off prices and shifting some negotiating power back toward buyers.
• More control: Homeowners can make their house their own, choosing whether to renovate or how to decorate without seeking a landlord’s approval.
• Predictability: This benefit has admittedly gotten murkier. While fixed-rate mortgages mean steady mortgage payments (and no rent inflation,) other monthly costs like home insurance can (and have) shot up.
So what?
If you want to be mobile or your life is still in flux, renting — especially in a moment when rents are edging down — remains a low-commitment, flexible choice.
But if you’ve been wanting to make more of your money work for you, and you’re ready to take on the commitment and cost of homeownership, it may be time to start looking.
Related Reading
Home Prices Are Poised to Dip in 22 U.S. Cities Next Year (CBS News)
What to Know Before Buying Your First Home (HGTV)
Housing Prices Are Causing Some People to Have Smaller Families than Planned (NPR)
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