Traditional wisdom has it that you should buy a home as soon as you can afford it. After all, when you rent, you are essentially sending money into a void. You’re paying someone else’s mortgage and, when you leave, you’re left with nothing to show for it.
However, life in 2022 is slightly different. Inflation has led to extreme price increases across the board, and many people are struggling to pay for the basics. The higher your fixed costs are, the less you’ll have to manage these prices. Owning a home comes with many fixed costs.
Homeowners insurance is one major example of a cost you can cut if you decide to rent. Renters insurance is much cheaper. Homeowners insurance is expensive because it covers the full value of your home itself. On the other hand, renters insurance only covers your possessions and it is unlikely to cost you more than $200 a year.
But even if this inflationary cycle ends and prices return to normal, is renting a home a smart financial decision in 2022? Are there reasons to rent even if you have the money to comfortably buy a home?
The Post-Pandemic Housing Market
Over the past two years, the housing market has gone against many people’s expectations. Prices started rising in the middle of 2020 at a remarkable rate. That has only continued, in spite of a number of milestones at which it was expected to cool.
A big factor that was expected to slow the housing market was the increasing interest rates set by the Fed to curb inflation. Yet, so far, housing prices have risen regardless. As such, a house will cost you more than ever before at the moment.
This has been good news for those who invested over the past two years. They bought at high prices and have only seen the value of their assets increase. You might think that investing in a house now, at these high prices, is worth it. However, the facade may be starting to crack.
Is a Housing Crash Imminent?
As we approach the end of July, economists are warning that a housing ‘correction’ has begun. Prices are no longer rising in many of the hottest markets. In some places, prices are already going down. As of yet there have not been any major crashes.
But there are fundamental issues at the heart of the housing market that may indicate a coming crash. One of the reasons housing prices increased was that demand was relatively good while supply was limited. Construction delays caused by the pandemic had led to a massive housing shortage.
Now, demand is dropping rapidly and houses are still being built. There are many houses already standing empty. According to the basic principles of supply and demand, prices will almost certainly drop. It remains to be seen whether this will merely be a correction or whether prices will plummet.
Renting in 2022
Renting in 2022 is also extremely expensive. The cost of rent has been rising rapidly over the past two years as well. In this context, renting might not seem like a good financial decision, when you could be pouring that money into a new home. With inflation cramping your budget, paying money into a void feels like a huge waste.
However, if there is going to be a crash – or even a correction – it may be worthwhile to continue renting temporarily. Not only will you save money on things like insurance and maintenance, but you may also save yourself a lot of money on a future mortgage. In a month or two, prices may already be significantly lower, and they may only drop as the year continues.
Furthermore, eventually interest rates will come down, and you may be able to get a much better mortgage rate. Buying now may leave you with significant buyer’s remorse.
A month ago, many experts would have been cautiously optimistic in advising people to buy homes. But today, buying a home is seen as a risk. Prices are unlikely to increase much further, and there is too high a chance that they will crash. Continuing to rent for the next few months might be the best financial decision you make.
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