Should I rent or buy a house in 2022?

The buy versus rent debate

Housing price growth — whether home buying or renting — went through the roof in the past few years. This much we know.

Rising interest rates in 2022 reduced affordability further, causing buyer pullback and a cooling marketplace. Some house hunters shelved their purchase plans and will wait for next year.

In several cities, owning your own home is the clear choice. But for the next wave of mortgage borrowers, it will be crucial to figure out if it makes more financial sense to rent or buy with their next move.

Rent prices just reached a new high

The latest Rental Report from Realtor.com showed the median monthly rental cost climbed to a new all-time high of $1,879 in July. This marked the 17^th month in a row where the median rent set a new record. Further, rising prices impacted all renters, whether they moved or stayed put.

Over half (52.4%) of renters who remained in their current place over the past 1-2 years saw a median rent increase of $160. Renters who moved within the past year experienced a jump of nearly $300 (27%) compared to their previous lease.

“Whether in a downtown area or suburb, staying put or making a change, renters are stuck between a rock and a hard place when it comes to affordability.”

–Danielle Hale, Chief Economist, Realtor.com

“Compared to three years ago when rental price premiums were typically concentrated in urban hubs, renting is now nearly as expensive in the suburbs, where the rise in remote work has driven a surge in demand,” said Realtor.com Chief Economist Danielle Hale.

Though the pace of price growth is flattening. July’s annual increase of 12.3% was the lowest rate of the past year, with the median price rising from $1,607. Meanwhile, the median rental cost only went up $3 from June.

Realtor.com’s data is inclusive of studios, 1-bedroom, and 2-bedroom units. The table above shows the full rental metrics for July. 

Home buying is getting easier for buyers

On the other side of the equation, home buying conditions are softening. While the median home price jumped 14.2% annually to $435,000 in August, it dropped off from $450,000 in June and $449,000 in July, according to Realtor.com.

Inventory gains are helping to push home values down. For-sale listings expanded by 27% from August 2021, with an additional 166,000 homes listed. In turn, the time properties spent on the market rose to 42 days on average, up from 37 days the year before and the first annual increase since June 2020.

“This year, in addition to the usual seasonal cooling, we’re seeing a shift in the balance of supply and demand,” Hale said. “After years of demand vastly outstripping supply — forcing buyers who wanted to find a home to bid up prices — supply has increased. And that means price growth has cooled.”

On top of that, many industry experts believe interest rates have reached their peak range, with any further growth being marginal.

Fall and winter 2022 could bring even cheaper homes

If 2022 exhibits typical seasonality, these patterns should continue to favor borrowers. Fall is typically the best time of the year for home buyers for two reasons.

1. First, sellers entering the market are usually more willing to negotiate so they can move before winter comes, according to Hale
2. Second, sellers with listings that didn’t sell over the summer usually find themselves highly motivated and more likely to make concessions

It appears the tide has already started turning from the extreme seller’s market brought on by Covid-19. In the last three months, 92% of sellers accepted buyer-friendly terms, with many allowing for contingencies that can easily kill offers in a hotter market — like home appraisals, covering closing costs, and paying for repairs.

Additionally, mortgage rate growth helped tilt the market toward buyers. When interest rates remained below 4% in March, 82% of homes sold at or above their asking price. That dropped to 69% in August. Conversely, the share of properties that sold below asking rose from 18% in March to 31% in August when rates moved between 5% and 6 percent.

“Buyers can be a little more selective now, and homes priced without factoring that in may indeed linger on the market and ultimately take a price reduction,” said Debbie Van Horn, Compass real estate agent. “In the recent two years, homes were priced and readily sold, without considering upgrades, condition, floor plan utility — all the things that truly affect a home’s value. That will have to shift back to typical pricing strategies. Buyers ultimately set the price.”

The bottom line

If you were waiting for a window of opportunity with less competition and more amiable sellers, your time may have come. Of course, it’s never a bad time to buy a home if you can afford it.

“Home prices are likely to remain high,” said Hale. “But if you can find a home that meets your needs and fits your budget, you may be able to lock in a majority of your housing costs with a fixed-rate mortgage.”

If you’re ready to take the next step, get all your ducks in a row first. Then, reach out to a local lender and real estate agent to talk about your home buying options.