You’ve heard it your whole life: buying is better than renting. Build equity. Stop throwing money away. Get on the property ladder before it’s too late.
But right now, that advice might be the most expensive mistake you make.
The misconception everyone believes
Most people think the rent vs buy decision comes down to one question: Is my mortgage payment less than my rent?
That’s the wrong question. It ignores the true cost of ownership—and in today’s market, those hidden costs have never been higher.
The standard advice assumes mortgage rates around 4%, steady 5% home appreciation, and predictable expenses. None of those assumptions hold in today’s environment. Rates have doubled. Appreciation has slowed in many markets. And the costs of owning—insurance, taxes, maintenance—have accelerated faster than anyone expected.
The hidden costs of buying right now
Opportunity cost of your down payment
A $100,000 down payment sitting in home equity earns you nothing beyond home appreciation. That same money in a high-yield savings account or index fund? It’s generating 4-5% annually in today’s environment.
If your home appreciates 3% and the market returns 8%, you’re losing 5% per year on that capital. Over 10 years, that’s roughly $80,000 in missed gains—money that never shows up on your mortgage statement.
This is the calculation most buyers skip entirely. They see down payment as “going toward the house” rather than what it actually is: capital deployed with an expected return. When you put $100,000 into a house, you’re making an implicit bet that housing will outperform your next-best investment option. In periods of high mortgage rates and uncertain appreciation, that bet looks increasingly questionable.
The math gets worse when you consider leverage. Yes, housing lets you control a $500,000 asset with $100,000 down. But leverage works both ways. A 10% decline in home value doesn’t cost you 10%—it costs you 50% of your down payment.
The true cost of 7% mortgage rates
At 7%, you’ll pay more in interest over the first 10 years than you’ll build in equity. On a $400,000 loan, that’s roughly $250,000 in interest payments in the first decade alone.
Run the amortization yourself: in month one of a 30-year mortgage at 7%, about $2,330 goes to interest and only $330 goes to principal. You’re renting money from the bank, not building wealth.
“But I can refinance when rates drop.” Maybe. But you’re betting your financial future on a prediction no one can make reliably. The Federal Reserve doesn’t know where rates will be in two years. Neither does your mortgage broker. Neither do you.
And refinancing isn’t free. Expect to pay 2-5% of your loan amount in closing costs. If rates only drop to 5.5%, you might need three or more years just to break even on the refinance costs—assuming you don’t move first.
The implicit assumption behind “buy now, refinance later” is that you’re getting a discount on the purchase price to compensate for the higher rate. In many markets, that discount hasn’t materialized. Prices have stayed stubbornly high even as rates rose, meaning you’re paying peak prices AND peak rates.
Maintenance, taxes, and insurance are exploding
Property taxes have increased significantly in many markets since 2020—some areas seeing 15-20% increases, others as much as 30% or more depending on reassessment timing and local budget pressures. Homeowners insurance has climbed 20-30% nationally, with some coastal and fire-prone areas experiencing 50-100%+ premium increases according to industry data.
Add 1-2% of home value annually for maintenance, and your “fixed” housing cost is anything but fixed.
The maintenance number surprises most first-time buyers. That 1-2% isn’t a worst-case scenario—it’s the long-term average. Roofs need replacing ($15,000-30,000). HVAC systems fail ($8,000-15,000). Water heaters, appliances, plumbing, electrical—something always needs attention.
When you rent, your landlord absorbs these shocks. When you own, you absorb them. And they never come at convenient times.
If you’re weighing whether refinancing makes sense in the current rate environment, you’ll find the break-even math is harder than it used to be.
The hidden costs of renting
Renting isn’t free either. Here’s what you’re trading:
No equity accumulation: Your rent builds someone else’s wealth. Every payment is consumption, not investment. Over 10 years of renting, you’ll have paid potentially $200,000 or more with nothing tangible to show for it.
Rent increases: 3-5% annually in most markets, sometimes more in hot areas. Unlike a fixed-rate mortgage, your rent is a variable cost that trends upward over time. In 10 years, a $2,000 rent at 4% annual increases becomes $2,960.
Instability: Landlords can sell, raise rent dramatically at lease renewal, or simply not renew your lease. You’re building your life on someone else’s property, subject to their decisions.
Limited control: No renovations, no permanent changes, someone else’s rules. You can’t knock down a wall, can’t install solar panels, can’t make it truly yours.
No inflation hedge: Homeowners benefit when inflation erodes the real value of their fixed mortgage payment. Renters don’t.
These are real costs. The question isn’t whether renting is expensive—it is. The question is whether it’s more or less expensive than buying, for your specific situation, right now.
When buying right now makes sense
Buying still wins in specific situations:
You’re staying 7+ years minimum: Transaction costs eat your equity quickly. Seller commissions now typically run around 5% after the NAR settlement changes in 2024, plus buyer closing costs of 2-4%. On a $500,000 home, that’s $35,000-45,000 in transaction costs to buy and sell. You need years of appreciation and equity building just to break even.
Your total housing cost is under 28% of gross income: The old rules still apply. If you’re stretching to afford it, you’re not building wealth—you’re building stress. And stress has its own costs.
You have 6+ months emergency fund AFTER the down payment: One job loss shouldn’t mean losing your home. Housing is supposed to provide stability, not create fragility.
You’re not sacrificing retirement contributions: If buying means stopping your 401k match, you’re losing guaranteed returns (50-100% match) for uncertain ones. That’s a bad trade.
Your local price-to-rent ratio is below 15: This is the rough break-even point where owning often beats renting financially. Above 20, renting usually wins.
When renting right now makes sense
Renting wins when:
You might move within 5 years: Career change, relationship change, location preference—life is unpredictable. The average person changes jobs every 4 years. If your job prospects might take you elsewhere, buying anchors you in ways that could hurt your earning potential.
Buying would consume more than 30% of take-home pay: You’ll be house-rich and life-poor. The happiest financial decisions leave margin. The worst ones consume every available dollar.
You can invest the difference: Renting only loses if you spend the savings. Invest them consistently, and you might come out ahead—especially in overpriced markets. This is the real trade-off between renting and investing the difference that most calculations ignore.
Your local market is severely overpriced: Price-to-rent ratios above 20 often favor renting. In San Francisco, New York, or Austin at peak prices, the math strongly favored renters who invested the difference.
You value flexibility: There’s a real psychological and financial value to being able to move with 30 days notice. Not everyone needs it. But if you do, it’s worth paying for.
The decision framework
Ask yourself:
- What’s my realistic timeline in this location? Not “where do I hope to be” but “where might life actually take me”?
- Can I afford to buy AND maintain my current savings rate? The house should fit into your financial life, not consume it.
- Am I buying because it makes financial sense, or because I feel like I “should”? Social pressure is the worst financial advisor.
- What happens to my finances if home prices drop 10%? 20%? Can you ride out a correction, or would it devastate you?
- Am I comparing actual costs or imaginary ones? Run real numbers with real quotes for insurance, real property tax rates, real maintenance estimates.
If any answer makes you uncomfortable, that discomfort is telling you something. Listen to it.
The math you actually need to run
Here’s a simple framework: Calculate your true monthly cost of owning. Not just the mortgage—add property taxes (monthly), homeowners insurance (monthly), maintenance (1% of home value annually, divided by 12), and the opportunity cost of your down payment (multiply by 0.004 for a rough monthly cost at 5% annual return).
Compare that total to your rent plus what you could invest monthly if you didn’t buy.
Run this calculation over your realistic time horizon. For most people in most markets right now, the break-even point is somewhere between 5-10 years of ownership. If you’re not confident you’ll stay that long, renting deserves serious consideration.
The bottom line
Right now, buying a home is neither automatically smart nor automatically foolish. It’s a decision that requires running your own numbers—not your parents’ numbers from 1995, not your coworker’s numbers, yours.
The market has changed. The costs have changed. The math has changed.
The trap isn’t buying or renting. The trap is making a 30-year decision based on a 30-second calculation—or worse, based on the assumption that what worked for previous generations will work for you.
Take the time. Run the numbers. Make the decision that fits your life, not the one that fits a proverb from a different era.