The U.S. housing market has declined since last year. A primary reason is that home prices continue to outpace inflation. That means that even as housing prices decline, potential buyers find buying a home too expensive.

Many people have chosen to rent instead. Yet, with rental and mortgage rates continuing to increase this year, rent-to-own programs may provide an in-between option. Read more below to find out if renting-to-own is right for you.
 

Home Prices, Inflation, and Renting in 2023

Over the past three years, demand for housing buying was high and the value of homes increased. However, high inflation has created problems for potential home buyers. Federal interest rate increases have contributed to higher mortgage rates and tighter lending standards. Home buying is thus a difficult prospect this year.

In the face of these challenges, many people have decided to rent while saving to buy a home. Others have opted to rent indefinitely because of high home costs. Since 2016, the average home price has risen by over 70% compared with the average rent price. In 45 of the 50 most populated U.S. cities, it costs less to rent than to own a home.

Real estate experts predicted that rents will grow this year, but that increase slowed down by last month. And, mortgage rates continue to rise, which has canceled out the advantages of owning versus renting. As inflation continues, the prospect of renting is more appealing than owning.

Mortgage rates in expensive cities like San Jose are three times higher than the average rent. Living in more populated and higher-demand urban areas creates more hurdles for buying a home. Given these housing conditions, renting could be a good short-term solution.

However, rents will continue to rise in the foreseeable future, and the investment value of a home still outweighs the cost in the long term. So, renting is not without its downsides. These trends make renting-to-own arrangements an attractive option this year.
 

Rent-to-Own Options in 2023

Although most homeowners do not follow the path of renting-to-own, these programs could be a viable option this year. Rent-to-own agreements allow tenants to eventually purchase the home they rent. That means rent goes toward the future purchase of a home.

Rent-to-own agreements come in two main forms. In one form, the owner and seller of the house provide an option to buy the home after leasing the property for one to three years (or longer if set out in the contract). This lease option approach requires an option fee to secure this right.

In the second form, part of the rent goes toward a downpayment on the home. These lease-purchase agreements entail higher rent payments and usually an obligation to buy the property at the end of the contract period.

To determine whether one of these arrangements is a good idea, potential rent-to-owners should understand the specifics involved in a contract, such as term length, whether the future price is set or variable, the fees involved, and whether a portion of the rent goes toward the purchase (and not just the downpayment).

If a rent-to-own situation looks appealing, then potential candidates should spend time improving their credit scores by paying off debt and reviewing a credit report. Applicants may also need to build up their work history and savings. The upside is that renting-to-own allows future homebuyers a chance to get more prepared to buy a home.
 

Rent-to-Own Pros and Cons

Renting to own has several advantages and disadvantages. The pros include being able to move into a home right away and not needing to wait, part of the rent can go toward the home purchase, and having an option not to buy the house.

Disadvantages of rent-to-own programs include losing money if the buyer is not able to purchase the home when required and home repair and other fees. Renting to own may also lock someone into buying the home, and an applicant may have difficulty getting a mortgage once it’s time to purchase the property.

These are areas to consider when deciding whether to enter into a rent-to-own arrangement.
 

Renting-to-Own this Year

To learn more about renting-to-own programs and get advice about them, visit YourHousingSupport. Renting-to-own could be a solid middle option this year.