To rent or to buy? Both options are likely to have a major impact on your finances and living arrangements. If you’re in the process of choosing between renting or buying a home in Baltimore, the first thing you’ll need to do is take stock of your personal financial position. After evaluating your financial options, you’ll also need to develop a strong understanding of rental and housing market dynamics in Baltimore.
Rental Market Conditions in Baltimore
Baltimore’s expanding rental market is expected to register further gains into 2020. Despite recent pullback, key drivers in the rental market — low entry costs, impressive initial rental yields, and a booming local economy — have continued to sustain a high rate of growth in rental property investment. The subsequent uptick in tenant interest has also prompted a surge in housing construction projects in and around downtown Baltimore.
However, despite the influx of high-income professionals, rental developers remain concerned by the long-term implications of Baltimore’s falling population. In fact, the prospect of housing inventory oversupply has already begun to place downward pressure on rental yields. Since the beginning of 2018, the median rent for a one bedroom apartment has dropped at a 0.2% month-to-month rate.
Steeper drops in Baltimore’s average rental price may be tempered by anticipation of increased interest rates. However, if the burgeoning Baltimore job market is unable to forestall the city’s population decline, it will likely leave renters in a strong position to negotiate further rent reductions.
Advantages of Renting
Lifestyle flexibility is one of the most frequently cited advantages of renting. Rental tenancy obligations are only active under a short-term lease period. This means that you’re free to move to a different state, city, or neighborhood as soon as your lease expires. As a renter, you’ll also avoid the upfront and recurring costs of homeownership, such as closing payments, homeowners insurance, and property taxes.
Drawbacks to Renting
Unfortunately, the life of a renter doesn’t always paint a rosy picture. As of May 2019, the average rental price for an apartment in Baltimore is $1,484 per month — that’s more than $340 above the national average for apartment rentals.
Renters will also need to consider the fact that their monthly rental payments do not generate equity in their home. This means that after one year of living in Baltimore, the average renter will have paid more than $17,800 in rent without accruing any ownership in the property.
To make matters worse, Baltimore renters must also contend with the general disadvantages of renting, such as:
- Rental apartments and homes are usually built closely together, limiting your privacy and increasing the chance of disruptive neighbors.
- Unlike a fixed-rate mortgage, your monthly rent will likely increase if you choose to re-sign your lease.
- Renters are rarely eligible for living status tax deductions or credits.
Housing Market Conditions in Baltimore
Despite the high cost of renting in Baltimore, only 45.5% of the city’s residents are homeowners. However, an early increase in yearly sales volume, largely driven by a 2% year-to-year drop in median sales prices, may be an indicator that Baltimore is transitioning to a more buyer-friendly market.
After a 0.1% year-to-year decline, the median home value for Baltimore appears to have stabilized at $114,800. Although the median sales price, currently sitting at $134,200, is still falling, positive market sentiment and high-income job creation continues to drive property value growth for off-market, inner-city homes.
Advantages of Buying
The biggest advantage to buying your own home is that your monthly mortgage repayments are building equity in the property. This means that, unlike rental payments, the money you put towards your home is contributing to an increase in ownership of a physical asset. If you need to tap into your home equity, you can take out a second mortgage or a home equity line of credit.
Aside from being less expensive than long-term renting, buying a property also gives you more freedom to renovate and repair your home. Furthermore, when you choose to buy, you’ll have a more stable home and presence within the local community, making it easier to befriend neighbors and explore Baltimore.
Drawbacks to Buying
Buying a home is a long-term, large-scale financial commitment and, as an undiversified and geographically fixed asset, the value of your property will be vulnerable to downturns or crashes in the housing market. To limit the potential impact of housing market fluctuations, try to maintain a strong personal financial position and avoid selling your home when the market is in freefall.
Another potential downside to homeownership is the added responsibility for general home maintenance and repairs. In most cases, homeowners are encouraged to budget up to 4% of their home’s value for annual maintenance and repair costs. In Baltimore, this equates to an annual average maintenance bill of $4,590.
As a homeowner, you’ll also have to account for the recurring cost of utilities. In Baltimore, the average customer pays a combined total of $430 per month in electricity/gas, internet, cable, and water bills.
Still Confused? Contact a Local Real Estate Agent!
If you’re still struggling to decide between renting and buying, it might be time to get in touch with a Baltimore-based real estate agent. After assessing your financial outlook and long-term living plans, an experienced real estate agent will be able to convey an impartial recommendation on the best course of action.
When you’re ready to buy a Baltimore home or apartment, contact Clever to connect with one of our local Partner Agents. Clever Partner Agents provide top-rated, full-service support throughout the buying process, from advising you during house hunting to representing you at closing negotiations. What’s more, when you buy a home through a Partner Agent, you’ll also be eligible for exclusive, on-demand home showings and a $1,000 rebate to put towards closing costs.