In normal times, buying a house vs. renting an apartment was a question of priorities, budget and goals. But the pandemic happened and now we have the "new normal."
Historically low home inventory, affordable interest rates and a cut-throat real estate market sent home prices soaring to record highs this summer. Factors favor sellers, not buyers. And the red hot housing market doesn't show signs of cooling off yet.
So renting (vs. buying a house) can save money, increase the odds you'll get the home you want in the future and help you avoid a stressful buying process.
Deciding whether to buy a house vs renting an apartment is always a complex decision. But for now, renting has some serious advantages.
It has never been more expensive to own a home in the U.S. than it is right now. The National Association of Realtors reported that the median existing-home price rose to $363,300 in June 2021. That's a record high.
The median home price is up 23.4 percent from June 2020, the second-highest jump since January 1999. All four U.S. regions recorded a price jump.
In addition, many homebuyers will happily pay more than the asking price. In states like California and Colorado, 60 percent of renters paid more than the list price in March 2021.
Prices don't look likely to drop anytime soon, since they've been rising steadily for almost a decade. Year-to-year gains have continued for 112 straight months.
The average price of rent also went up during the pandemic, but the rise wasn't nearly as dramatic. The cost of a one-bedroom apartment increased 4.63 percent nationwide between June 2020 and June 2021. The rental price of a two-bedroom apartment rose 3.43 percent during the same period.
Financial experts recommend spending no more than 30 percent of your gross pay on rent or a mortgage. The pandemic disrupted jobs and incomes, many renters are watching every penny in an attempt to keep housing costs under control.
A 2020 Entrata study revealed that the pandemic changed 42 percent of renters' short-term housing plans. Of the renters surveyed, 16 percent renewed a current lease instead of buying a home. To cut costs, 13 percent moved to a cheaper apartment. Another 7 percent moved in with family or friends.
It's not just home prices that are up — the sheer number of home sales is climbing, too. And they don't stay on the market for long.
Sales of existing single-family homes, condos and townhomes increased 1.4 percent between May and June 2021, according to The National Association of Realtors. June sales increased 22.9 percent from the previous year.
The amount of time a home spends on the market is also at an all-time low. In June, the National Association of Realtors reported that the average house was on the market for just 17 days.
Buying a house (vs. renting an apartment) is especially challenging right now because the U.S. is experiencing a housing supply shortage. There were half as many houses for sale (468,000) by February 2021 as there were a year earlier, according to Altos Research. That number includes condos, townhouses and single-family homes.
Older homeowners at increased risk of coronavirus stayed in their houses, limiting turnover. Some homeowners couldn't find a new place to live in such a competitive market, while others clung to their existing home's low mortgage during a time of financial uncertainly. More boomers welcomed home college-age and adult children back into the family home during the pandemic.
A National Association of Realtors report authored by the Rosen Consulting Group revealed that the U.S. is in the midst of an "underbuilding gap" of around 6 million housing units, a problem that dates all the way back to 2001. The 2007-2008 housing crash challenged the building industry and many construction workers found other jobs. A shortage of materials and disruptions in the supply chain drove building costs higher during the pandemic.
“Contractors are experiencing unprecedented intensity and range of cost increases, supply-chain disruptions, and worker shortages that have kept firms from increasing their workforces," said Ken Simonson, chief economist with Associated General Contractors of America. He spoke to CNBC in May 2021. Apartment inventory increased in many neighborhoods
Apartment inventory is up in many cities and neighborhoods. More people buying homes means that more people are moving out of apartment apartments. That means renters have more options to choose from, especially in certain cities and neighborhoods.
When stay-at-home orders closed offices and non-essential businesses, many downtown districts grew quiet. Renters no longer needed close proximity to work and couldn't enjoy the restaurants and entertainment that dense urban cores typically offer. People worked, studied and socialized at home, so extra space (both indoors and out) became a hot commodity.
As a result, many of the country's most densely populated cities saw population losses during the pandemic. Suburbs and smaller cities nearby saw gains. This opened up many apartments in city centers around the nation.
Increased inventory meant big savings and increased flexibility for renters in city centers and markets where housing prices decreased during the pandemic.
Landlords were quick to promote flexible leases early on. A National Apartment Association survey released in July 2020 found that two-thirds of landlords offered short-term leases to at least 10 percent of their residents. That was up from an average of 7.3 percent a year earlier. Many also waived fees for short-term leases.
This empowered renters to counteroffer and negotiate better deals. Many relocated to neighborhoods (and cities) that were out of their price range before the pandemic.
Renters in a secure financial position enjoyed increased bargaining power. That wasn't the case for potential home buyers.
Very low inventory means more people are competing for fewer homes. Houses sell fast, so potential buyers need to make offers almost immediately. Bidding wars frequently occur and homes often sell for more than the asking price.
To close the deal, some buyers pay in cash. Others waive inspection and appraisal fees to stay competitive, crossing their fingers that they won't face costly repairs. Some even write “love letters" to entice sellers to pick them (which the NAR says could violate the Fair Housing Act) or try to bribe sellers with gifts, perks and incentives.
Forget buying your dream home — buying any home is an accomplishment in many markets in 2021. Renting is much less stressful right now.
Buying a house instead of renting an apartment often leaves you stuck in an area that maybe you aren't too familiar with. Renting gives you a chance to experience a city or a neighborhood without making a long-term commitment.
It can help you make a more educated decision about where you live and determine if a particular neighborhood is a good fit.
That's especially important right now since the pandemic has changed many neighborhoods — and what we want from them. Some businesses didn't make it and others popped up to take their place, which changes everything from the flow of traffic to a neighborhood's vibe.
Many patios, pedestrian zones and outdoor gathering places created during the pandemic are now permanent fixtures. Parks, bike trails and green spaces matter more to people who got in the habit of exercising outdoors.
The pandemic hit many renters hard. The previously mentioned 2020 Entrata study said that 78 percent of renters cut their spending in response to COVID-related financial challenges.
A 2021 Apartment Guide study detailed how renters spent their first stimulus check. The largest percentage (19.96 percent) used it to pay rent. But paying utilities not covered by rent came in second at 18.29 percent.
Since at least some utilities are usually included in the rent, most renters have fewer expenses. In contrast, homeowners have to pay for heat, electricity, water and trash services.
They're also responsible for maintenance like mowing and watering the lawn, landscaping and keeping sidewalks and driveways clear in the winter. These tasks take time and also require homeowners to purchase special equipment like mowers, hoses and shovels. At a moment when renters are keeping their budgets in check, adding expenses is an additional burden.
When you're in virtual school or working from home, your home's location doesn't necessarily matter. You're not tied to a particular neighborhood because it's close to work or school or limited by the shortest commute. When you can choose your neighborhood based on the experiences you want to have, a whole new range of options unfolds.
Experts predict that working from home is here to stay. The Global Work From Home Experience Survey released in January 2021 states that 45 percent of 48 million full-time U.S. workers can do their job at home. Of these, 82 percent that they would like to sometimes work from home at least once a week.
The study estimates that if that 82 percent of workers actually did work from home for 2.5 days a week, employers could save more than $500 billion a year. In addition, every employee would save an average of $3,000 per year and gain back the equivalent of 14 days of commuting time. With savings like that, it's no wonder that more American workers want a hybrid schedule.
“Our best estimate is that 25 to 30 percent of the workforce will be working-from-home multiple days a week by the end of 2021," said Kate Lister, President of Global Workplace Analytics.
Renting vs. buying a home is a personal decision that depends on your goals, budget and priorities. But a highly competitive and expensive housing market means that renting offers many clear advantages in 2021.