Buy Or Rent In Chicago?

This updated article includes the latest information to help you answer the question “should I buy or rent in Chicago”. In recent years, mortgage interest rates, inflation, and supply issues have driven costs up for both renters and buyers. Let’s take a look at current market dynamics, then we’ll explore the pros and cons of buying vs. renting in Chicago.

Chicago Market Dynamics

For renters: The bad news is rents continue to trend upwards in Chicago

While averages vary by neighborhood, the overall trend points to increasing costs. For instance, the average monthly rent in the Chicago Metro Area is approximately $2,098. Supply of rentals remains tight, particularly in highly sought-after areas. Should you decide renting is better for you than buying, expect to compete to find the right place.

For buyers: Home sale prices in Chicago have seen continued appreciation

The average monthly mortgage payment in the Chicago Metro Area is approximately $2,606. The buy-rent gap, indicating the difference in affordability, stands at 24.2%, with a year-over-year change of 1.3%.

Inventory of properties for sale remains low across all types, including condos. That said, in some specific areas, particularly for 1-2 bedroom condos, local factors might present unique opportunities.

Rising mortgage rates have continued to influence the number of qualified buyers in the market. Many current homeowners with lower mortgage rates have a strong incentive to stay put, affecting the supply of homes.

Bidding wars are still happening for ideal, turn-key properties especially in the suburbs, indicating continued strong demand for pristine homes.

But should I buy or rent in Chicago?

Our Advice:

“If you plan on staying 3+ years, buying probably makes more sense than renting. With current mortgage rates, we know it’s a challenging environment, but remember, you “date the rate and marry the property”. You can always refinance if and when rates decline. Moreover, should mortgage rates actually decline, pent-up demand will likely create a feeding frenzy with bidding wars for a limited inventory.”

Resources for Renters:

The New York Times offers an updated and robust Buy/Rent Calculator that is an excellent resource should you want to take a deeper dive into all the elements that might help you determine if you should buy or rent.

For further insights on the rent vs. buy decision, you can also consult the recent Bankrate Rent vs. Buy Affordability Study.

Search All Current Chicago Listings or Contact Us for help with your decision, tips on getting pre-qualified, and your search.

Next, let’s take a look at the traditional pros and cons of buying vs. renting.

Best Reasons To Buy In Chicago

As always, buy for freedom, to hedge inflation, as a vehicle to force savings, to build equity, and for the potential tax benefits.

Let’s look at each of these reasons to buy vs. rent in Chicago:

For Freedom

The main reason many people want to buy a home is for the feeling of freedom it brings. As a homeowner, you have total freedom to express yourself creatively and productively in your space. The result for many is a higher quality of life. For instance, homeowners have the freedom of creative expression and choice. For example, you can transform an older kitchen into a modern hub of social activity for friends and family. You own it, you decide! Of course, if it’s a condo, this freedom may be curtailed by the condo bylaws, rules, and regulations.

As A Hedge Against Inflation

Normally, with inflation comes higher rent rates. If you’re a homeowner with a fixed mortgage, you are essentially protected against inflation going forward. Historically, many Chicago renters have felt the pain of annual rent increases, and this trend continues in today’s market. Alternatively, buy a home and you lock in a mortgage interest rate for 5, 7, 10, 15, or 30 years, but you can refinance should rates decline. Plus, knowing what your monthly payment will be in the long haul provides a sense of peace that renters often don’t enjoy.

To Force Savings

Over the years, homeownership has been a really good investment for many Chicagoans. Clearly, it’s not without substantial risk, as we know from past market fluctuations. But a long-term perspective shows the significant savings value. Plus, home buyers often purchase on a large margin, in some cases with just 3% to 5% down. That’s a leverage opportunity not found in other investment venues like the stock market.

To Build Equity

When deciding whether to buy or rent in Chicago, building equity may be one of your primary reasons. Over the past several decades, buying a home has proven to be a great way to build personal wealth. Each month, a portion of your mortgage payment is applied toward paying down your loan principal. So, assuming home prices appreciate, when you sell your home, you’ll receive the principal you paid in plus money from any market appreciation. This sounds pretty good compared to paying rent, a 100% monthly expense where the money is gone.

For The Tax Incentives

The tax incentives for many home buyers in Chicago are still quite significant. Those living in markets with high local property taxes and super expensive housing (think NYC and Silicon Valley) are not seeing the same tax incentives they did prior to federal tax reform. However, mortgage interest and property taxes remain tax deductible for many Chicago homebuyers. Rent, however, is generally not tax deductible. In addition to annual tax deductions, homeowners can often make money on the sale of their home and take profits tax-free within certain limits. Talk with your tax accountant about your specific tax circumstances.

Resources for buyers:

Best Tips For First Time Home Buyers In Chicago

Buying A Chicago High-Rise Condo

Mortgage Calculator

Get Pre-approved For A Chicago Mortgage

Contact Us For Help

Best Reasons To Rent In Chicago

Rent for career and financial flexibility, to save a down payment, and to avoid repair bills, real estate taxes, and real estate market risk.

Here are the best reasons to rent vs. buy in Chicago:

For The Flexibility

These days flexibility seems to matter more than ever. For many, the best reason to rent is to maintain career and/or financial flexibility. You’ll want the flexibility that renting provides if you expect a job change, a promotion to a new market, or meet that special someone who lives elsewhere. Consider your time horizon. If you can’t see beyond two years, then you should probably rent. You’ll appreciate that flexibility when you want to make a change. Or rent if you want the financial flexibility to invest your money somewhere besides a home. For example, building a small business may be a better use of your capital at the moment.

To Save Up

Say you want to put a significant down payment on a home purchase but need to save more to get there. Then rent and save until you have the money needed. If this is the case, you’ll want to be sure it’s actually cheaper to rent than buy in Chicago for your specific situation. To answer that question, run the numbers for your scenario.

For The Lower Expenses

Owning a home can be expensive at times. If you’d prefer not to pay for those things that go wrong, then rent. For example, if you rent and the HVAC fails, the landlord pays the big bucks to replace it.

To Avoid Taxes

Real estate taxes in Downtown Chicago neighborhoods can be substantial, and at the moment, it seems they will only go higher. If you’d rather not be committed to pay those taxes, renting might be best.

To Reduce Market Risk

If you believe that in the next few years home prices might go down, you may want to rent a place to avoid market risk. When renting, you can manage risk by negotiating a fixed rent for a second or third year in advance.

Resources for renters:

How To Find A Rental In Chicago’s Competitive Rental Market

Explore The Latest Chicago Rentals

Conclusion: Should You Buy Or Rent In Chicago?

It’s our hope this discussion of the pros and cons of buying vs. renting in Chicago has helped you determine the best course of action for your situation.

Further questions? Ask us, we’re here to help you buy or rent in Chicago!