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"Mortgage rates surged in the second week of the new year. The 30-year fixed mortgage rate rose to 3.45% from 3.22% the previous week. If inflation continues to grow at the current pace, rates will move up even faster in the following months. Nevertheless, the Fed has already started its efforts to control inflation by pulling back on bond purchases and raising interest rates later this year. Thus, if inflation slows down, mortgage rates may not rise as much, remaining near historic lows. NAR expects inflation to start easing in the second half of the year, growing by 4.5% by the end of 2022.
Nevertheless, amid rising rates, owning a home remains more affordable than renting. After comparing the monthly mortgage for owning a median-priced home ($1,260) to the average rent ($1,540), it's still more affordable to buy a home. Taking into consideration the financial and social benefits of owning a home, the gap between owning and renting is even larger. For instance, people who bought their home a year ago have already accumulated more than $50,000 in equity in just one year.
Meanwhile, it is estimated that more than 35% of renters can currently afford to buy the typical home. This translates to nearly 15.1 million renter households. These renters are typically 40 years old, 42% of them are married, and most of them have a bachelor's degree or higher. Looking at their expenses, these renters spend $1,450 on average for rent. Thus, as it makes more sense for them to own than rent a home, expect homebuying activity to remain strong this year."
