Is it better to buy or rent a property in the US in 2024? That’s a question that many investors are asking themselves as we head towards the end of this year. The short answer is that in almost all areas of the country, renting is still a cheaper option than owning. Both rents and housing costs may have gone up in 2023, but the rental market is increasing at a faster rate. In this blog, we’ll explore why renting may still be more affordable than owning in 2024, and what investors should know about the current real estate landscape.
High Housing Prices: Despite the recent housing boom, the cost of buying a property in most US cities remains high, and not very accessible to the average investor. According to a Zillow report, the median home value in the US is currently over $280,000, a near 20% year-over-year increase. While some cities and neighborhoods may offer more affordable opportunities, the majority of the country is out of reach for first-time homebuyers and smaller investors.
Rising Interest Rates: Even if a property purchase is within the budget of an investor, the rising interest rates could make it more difficult to afford and more expensive over time. The Federal Reserve has been gradually increasing interest rates from Zero since 2022 and this is expected to continue for a few more years. This means that even if the price of a property looks reasonable now, higher interest rates could push the overall cost up significantly in just a few short years.
Inflation: Another trend that could make renting a better option at this time is inflation. With inflation rates at a historic high, the cost of goods and services are increasing, making it more challenging to find affordable properties to buy or finance. While this could be seen as an opportunity for investors to make more money, inflation also means that the cost of property renovations, maintenance, and repairs will also increase making the overall cost of owning a home go up.
Low Rental Vacancy Rate: On the flip side, the rise of rentals has made renting more attractive for investors. The demand for rental units has increased significantly in recent years. As of the third quarter of 2023, the national rental vacancy rate was just 6.6%, the lowest level since 1985, according to the US Census. This demand has led to a significant increase in rents nationwide, making renting an attractive investment option for those looking for cash-flow positive investments.
Greater Mobility: Finally, one of the most significant advantages of renting is the flexibility and mobility it provides over owning. The cost of selling a property and moving can outweigh the benefits of buying a home. And with the current job market, this can be a significant downside. If investors need to move for work, or simply want to change location, renting gives them the freedom to do so without the burden and costs of owning a property.
Overall, investors should think carefully about their options before deciding to buy a property or invest in rental units. While there could be a few pockets of the US where buying could make sense, in most areas renting may still be a better financial decision. Despite rising rental costs and inflation rates, the current real estate landscape, including increasing interest rates, high housing prices, and a low rental vacancy rate, make renting the more affordable and flexible option for investors in 2024. By choosing a sound rental investment strategy, investors can still expect to make a reasonable return on investment, while enjoying the flexibility of not being tied down to a specific location or property.