The coronavirus pandemic gave the housing market an unexpected boost. Many city-dwellers — working remotely and no longer location-dependent — ditched their digs for more spacious homes in the suburbs.
This so-called “urban exodus” was already in motion before the pandemic. But with the virus driving the number of remote workers to historic highs, the migration accelerated.
The trend may continue on some level. A recent poll shows that 26% of city residents are likely to move because of the pandemic — although that number is down from previous surveys. With the ease of searching for and buying a home online, many people looking to move will face a dilemma: Is it better to buy a home right away or rent first in a new area? We explore the advantages and disadvantages of each.
Moving to a new area? Here are the pros and cons of jumping right into a mortgage
The financial impact of buying compared to renting in a new area depends on many factors, including location and how long you expect to stay there. There are tools to help you measure the cost of renting versus buying, but in addition to crunching numbers, consider these pros and cons.
- You’ll start building wealth immediately. Purchasing right away means your monthly housing payment goes toward building equity in your own home instead of potentially increasing someone else's.
- You’ll avoid the hassle and expense of multiple moves. No one loves packing up their belongings more than they have to, and if kids are involved, you may be eager to settle down sooner rather than later.
- You can lock-in historically low interest rates. One of the driving factors behind the housing market boost is ultra-low interest rates. Purchasing immediately means taking advantage of the low cost to borrow.
- You’ll avoid being locked into a lease. If you buy first, you won’t have to worry about potentially breaking a lease when you’re ready to move.
- Leverage tax benefits right away. Purchasing instead of buying means you’ll be able to take advantage of property tax and mortgage interest deductions if they apply to you.
- You’ll be tied to a specific location. If you end up not loving the area you move to, you’ll have a complicated and expensive decision to make.
- You might pay a high purchase price. Thanks to low inventory levels and low interest rates, there are more buyers than homes right now. These conditions are driving home prices up.
- You may have to purchase a home sight-unseen. Depending on where you're moving to and COVID-19 restrictions, you may need to commit to a purchase with limited in-person visits to the home, and in some cases, none at all.
- You won’t be able to explore the area. Even with numerous tools and resources available online, you’ll miss out on the benefits of familiarizing yourself firsthand with the town or neighborhood.
- You may not be clear on your needs and wants. Depending on your motives for leaving your current location, it could take moving to discover what your needs will be in the new neighborhood. If you purchase right away, you may do so based on criteria that eventually change.
If a permanent move feels like too much, consider renting instead
If you do decide to rent, you’ll be in good company. Rentals have skyrocketed since the pandemic, including among single-family homes. And as the demand increases, developers and investors are answering the call by building and expanding rental communities, especially in suburban towns notorious for expensive housing.
Renting will give you the time and space to test-drive a new area and all the dynamics of the location. Additionally, you’ll be able to conduct your home search locally, giving you more access to homes and the ability to react quickly to new listings.
On the other hand, renting first does mean moving at least twice. And if you do have kids, you’ll probably want to avoid uprooting them more than you have to. Another drawback is potentially having to break a lease when the perfect home comes along. However, you can off-set that by looking for short-term leases or communicating with your landlord up-front about your plans to move.
How to decide which is right for you
Purchasing a home is not only a significant financial decision; it’s also an emotional one. And whether or not you should buy or rent depends heavily on your overall goals, financial situation and motives for homeownership.
If building equity immediately is a top priority, you may decide that purchasing right away is worth forgoing the benefits of waiting. On the other hand, if affordability is a concern, you might discover that renting may stretch your monthly housing dollars more in a particular area.
In addition to crunching the numbers for buying compared to renting, you’ll need to consider what each option means for you and your family logistically, socially and emotionally.