Moving to a new home always involves making major decisions. This is especially true for young people, because in this case they may be facing one of the most important dilemmas of their entire lives: renting or buy a home. It’s a question that’s never easy to answer—and even less so right now, in such a rapidly changing and uncertain time.

At Culmia, we know that every year thousands of people ask themselves this question, so we’ve put together a short guide to help those who are undecided make the right choice. So, if you’re one of them right now, we encourage you to keep reading—by the time you finish this article, you might have a better idea of what’s best for you.

Current Real Estate Market Context

The first thing to keep in mind is that the decision between renting and buying a home can be heavily influenced by the current situation. What may be more profitable today wasn’t as profitable a few years ago, and it will likely change again in the future. That’s why it’s essential to get a good grasp of the current situation, both in socioeconomic terms and in terms of factors that directly affect the real estate sector.

As far as the market is concerned, there is currently a clear imbalance between housing supply and demand. Demand far exceeds supply, which is why sales and rental prices tend to rise. This is mainly due to the following factors:

• In the housing market, the shortage of new housing construction is due to various factors, such as a lack of land, rising costs, and a shortage of labor. The Sociedad de Tasación estimates that between 80,000 and 100,000 more new homes would need to be built each year to meet the country’s annual demand of 200,000 households. Added to this is a significant imbalance between the number of people willing to buy (77%) and the number of homeowners willing to sell (17%).
• In the rental market, due to the current shortage of supply, it is estimated that in 2015, 14% of the homes on the market were available for rent, while by 2023 this figure had fallen to 7.60%. And the recent Housing Act does not seem to have helped in this regard either, because according to the National Federation of Real Estate Associations, supply has fallen by 30% in less than a year.

Added to all this is the social and economic landscape, marked by inflation, high energy and raw material costs, and the current weakness in foreign demand. This leads us to conclude that, in the short term, the market will continue on its current trajectory, with prices continuing to rise, albeit at an increasingly slower pace.

Pros and cons of each option

Beyond contextual factors, there are notable differences between renting and buying a home. That is why we are going to discuss the pros and cons of each of these two options.

Rental Housing

Advantages

• It’s more convenient and faster: there are fewer steps involved compared to buying a home, so you can start enjoying your new home in no time.
• There’s greater flexibility: the commitment to the new home is minimal because, once we’ve exceeded the minimum stay period, we can end the lease. This is especially important if we don’t plan to settle in a particular place or if we make the wrong choice.
• You don’t need to have a lot of savings: renting allows you to live within your means, so there’s no “barrier to entry.” As long as you can make ends meet each month, you’re eligible for a home under this system.
• The cost of living in a rental is lower: the landlord is responsible for any major repairs the property may need, as well as the associated taxes. Therefore, in the short term, it is not as expensive an option as owning a home.
• It provides access to homes that, if purchased outright, would be prohibitively expensive: for people who don’t have substantial savings, renting is the perfect solution for enjoying homes they cannot afford to buy. And the fact is that, in many cases, making the transition from renting to buying means trading a large home for a smaller one.

Disadvantages

• Paying rent isn’t an investment in the future: renting allows you to think only about today, not about tomorrow. Every euro you spend goes toward living in that house for that month, but not toward enjoying it in the future.
• There is a minimum lease term: renting requires a commitment to pay your rent for the minimum period specified in the lease agreement.
• You cannot renovate or modify the apartment: unless you can convince your landlord, you won’t be able to do any major renovations to the apartment to make it to your liking.
• Uncertainty: The landlord can terminate the lease if he or she gives the tenant sufficient advance notice. Therefore, renting is not synonymous with stability.

Home Purchase

Advantages

• The house belongs to you: your house, your decisions. You can renovate or decorate it exactly as you like and use it however you see fit, since you’ll have the option of living in it or renting it out.
• You pay as you invest: the money you use to purchase the home—whether in cash or through a mortgage—makes you the owner. Therefore, the home becomes part of your real estate assets and may appreciate in value over time.
• In the long run, it’s more economical: according to a study conducted by the real estate agency “Tecnocasa, ”over a 25-year period, it’s much more cost-effective to buy than to rent. Specifically, it would mean saving between 200,000 and 300,000 euros compared to renting in cities such as Madrid, Barcelona, or Bilbao.
• Stability: Owning your own home is synonymous with peace of mind and emotional security. Without a landlord, the uncertainty about the future disappears, and it becomes much easier to make plans, such as starting a family.
• Over time, it ceases to be a fixed expense: once the house is paid off, the expense disappears. Renting requires you to pay as long as you live in the home, whereas buying involves expenses that are temporary: sooner or later, the debt will be paid off in full.

Disadvantages

• The process of buying and selling a home is considerably more complex than renting: It involves many more steps and numerous associated costs, as you can see in our Guide to Buying a New Home.
• You’ll need savings: Under normal circumstances, to buy a home, you’ll need to have saved nearly 30% of its total value. This amount will allow you to pay the down payment and cover the closing costs, while you can apply for a mortgage to finance the rest.
• You’re committing to a payment plan that spans many years: if you take out a mortgage to pay for your new home, keep in mind that you’re taking on a medium- or long-term debt with your bank. This means that if you fail to make your payments, you could even end up losing your home.
• If you don’t make the right choice, you’ll have a problem: if you buy a house with some kind of issue, you’ll have to deal with it. For example, you might have to deal with noise, troublesome neighbors, or high temperatures. If this happens in a rental, it’s very easy to move on, but if you buy a home, you may have no choice but to get used to these situations.

Factors to Consider When Deciding Whether to Rent or Buy a Home

Now that we understand the advantages and disadvantages of each of the two available options, we can identify the factors we need to consider when making the final decision.

What does the future hold for us: a nomadic or settled life?

Although it’s practically impossible to know what tomorrow will bring, our personal situation (or that of our family) can help us see things a little more clearly.

So, if we have a stable job that doesn’t require us to move from our city of residence or to travel regularly, we might prefer to buy a home. On the other hand, if we’re used to moving to a new location every so often and our lifestyle is nomadic, the best option is, without a doubt, renting.

Our Economic Situation

From an economic standpoint, and in the long run, we have already seen that buying is the best option, since it is significantly more cost-effective. However, it requires a very significant initial investment that not everyone can make because they lack the necessary savings.

Consequently, if we’re living paycheck to paycheck and our financial situation is precarious, renting may be an ideal option until we get on solid footing. Buying, on the other hand, will be the most attractive option if we have a solid financial foundation and are established in our careers.

Your Family Planning

Do you plan to live alone, with a partner, with friends, with one or more children…? If you’ve just moved out on your own and plan to live alone or with friends, you might prefer to rent so you can take it slow and not overcomplicate things at first. But if you’re in a relationship and have already started planning your future as a family, you’ll likely prefer to buy, since the financial burden of the purchase is shared between the two of you and homeownership is synonymous with stability.

Current State of the Real Estate Market

As we’ve already mentioned, the current situation is key to making the right choice between renting and buying a home. If we carefully analyze the real estate market, observe recent trends, and study prices by area, we’ll be able to make smarter decisions.

Essentially, because it’s not advisable to rush into buying a home when prices are at historic highs; not only will you have to pay more than you would at other times, but the home may also lose value down the road. And something similar happens with renting: signing a lease when rental costs are skyrocketing can end up putting a significant strain on your finances, since the landlord can even raise the rent by as much as 3% from one year to the next.

Renting or Buying a Home: The Importance of Knowing the Facts to Make a Good Decision

You’ve seen it for yourself: everyone is different, so there’s no one-size-fits-all answer to the question of whether it’s better to rent or buy a home. In both cases, the market is currently very tight and prices are very high, although it’s clear that, if we think about the very long term, buying is the best option for our wallet.

Beyond that, our lifestyle, our plans, and our financial situation will influence the final decision. That’s why the best advice we can give you to ensure you make the right choice is to carefully consider your options, taking into account two aspects of your current situation: your personal circumstances and what the real estate market has to offer.

We recommend:

• Selling or Renting Your Home: Which Is Better Right Now?
• “Built to rent”: What is it, and what are its advantages?