To Rent or To Buy? A 2021 Update on the Classic Debate
Continue renting for flexibility and convenience, or invest in your financial future by purchasing a home and building equity? Millions find themselves on the fence at any given time. But with so many of us spending record time at home the last couple years, living arrangements have been more relevant than ever.
As a reader of this publication, you probably know that the incredibly competitive market since the pandemic created a buyer frenzy that has continued well into 2021. In June, for example, the S&P CoreLogic Case-Shiller Indices found single-family home values in the Chicago area rose 13.3 percent over the year prior–the largest increase since November 1989. It also revealed that Chicago area home values may soon reach their all-time peak level from September 2006. Score a couple points towards renting?
Not necessarily: rents are back up too. Partially fueled by people moving into rentals from out-of-state, the occupancy rate of downtown Chicago apartments was up to 94.5 percent this second quarter, up nearly eight percent from the fourth quarter of 2020. Apartments.com reported rents nationally were up 7.5 percent in July, three times higher than normal. Don’t expect to get that three months’ free special you saw a year ago.
Another issue with apartment supply greatly influences this debate. If you’re potentially in the market to purchase a home, you’re likely comparing that with larger apartments to rent. But apartments of two or more bedrooms are statistically far less common, and Realtor.com found that in many areas, those larger units have seen the greatest increases in rents. In July, two-bedroom units were 15.2 percent more expensive nationally than two years prior, compared to 12.4 percent for one-bedrooms and 6.5 percent for studios. The same numbers are more subdued for the Chicagoland market specifically, but with new multifamily developments typically heavily prioritizing studios and one-bedrooms, this imbalance is likely here to stay.
Now the good news for buyers. The Chicago area housing market had lagged behind faster-growing peers for years, so even the rapid inflation here pales in comparison to some other locations. Cities such as Seattle and Austin grew far faster since the depths of the Great Recession, effectively preserving Chicago’s status as one of the nation’s more affordable large metro areas.
Real estate is hyper local and depending on the location, price point and type of property that a buyer wants to purchase, there may be greater opportunity than buyers expect. Not every market segment faces the same lack of supply that has been one of the driving factors behind home price increases. And as mortgage interest rates remain near historic lows, buyers may find that home ownership is more affordable in 2021 than it’s been in years past, even as prices have increased. As you consider your options, make sure to consult your Baird & Warner agent for insight on your specific situation.