Renting Homes is More Affordable than Buying in the Top 50 US Metros
The dream of homeownership may be slipping further away for many Americans, as a recent report reveals that renting a home has become more affordable than buying one in the top 50 metropolitan areas across the United States. The report, released by Realtor.com, highlights the impact of elevated mortgage rates on home affordability.
According to the report, the cost of purchasing a starter home in these metros is a staggering 60.1 percent higher than renting one. In the top 10 metros that favor renting over buying, the average monthly payments for a starter home were nearly double the cost of renting. These metros are typically known for their high concentration of tech workers and high earners, where both rent and home prices are above the national average.
The Austin-Round Rock-Georgetown metro area in Texas takes the top spot as the market where renting is most favorable, with the monthly cost of buying a starter home being 141 percent higher than renting. This is followed by Seattle-Tacoma-Bellevue in Washington state, Phoenix-Mesa-Chandler in Arizona, and San Francisco-Oakland-Berkeley in California.
Furthermore, the report reveals that five metros have flipped from being buy-favoring markets to rent-favoring ones in the past year. These metros include Memphis, Tennessee; Birmingham, Alabama; Pittsburgh, Pennsylvania; St. Louis, Missouri; and Baltimore, Maryland.
The median asking rent for February in these 50 metros was $1,708, experiencing a slight decrease from the previous month. However, despite this decline, the U.S. median rent is only $50 lower than its peak in August 2022.
The affordability crisis in the housing market is further highlighted by a study from real estate brokerage Redfin, which found that the typical American household now earns $29,448 less than what is needed to purchase a median-priced home. To afford a median-priced home worth $412,778, prospective buyers required an annual income of $113,520 in February. This annual income requirement has increased by 12 percent compared to the previous year. Redfin attributes this strain in home affordability to the fact that housing costs rise much faster than people’s incomes.
The report from Realtor.com suggests that elevated mortgage rates have become a key driver in making homeownership less affordable. However, there may be some hope on the horizon as rates are expected to fall again by the end of the year, potentially making homebuying more affordable and incentivizing buyers to enter the market.
Despite this glimmer of hope, experts do not foresee buying homes becoming cheaper than renting anytime soon. Thomas Ryan, a property economist at Capital Economics, believes that even as mortgage rates decline, renting will remain the more cost-effective option until at least 2026.
Real estate services firm CBRE also predicts that renting will remain less expensive than buying a home for the foreseeable future. Over the next five years, CBRE anticipates a 2.8 percent annual growth in multifamily rents. Lower mortgage rates and falling home prices may bring the cost of homeownership closer to renting, but as long-term mortgage rates remain above pre-pandemic levels, many homeowners will continue to hold onto their homes financed at lower rates, tightening the home sales market and boosting prices.
To purchase a starter home in the United States, a first-time buyer now needs to make $76,000, according to Redfin. The definition of a starter home has evolved over the years, with smaller homes now often requiring significant investments to make them habitable. The most affordable homes today are still challenging for the average American to afford, let alone first-time buyers who typically put less money down in exchange for higher monthly payments.
In conclusion, the report’s findings shed light on the growing disparity between the cost of renting and buying homes in the top 50 US metros. Renting has become a more affordable option, with elevated mortgage rates being a significant factor impacting home affordability. While there may be some relief in the form of falling rates, experts believe that renting will remain the more cost-effective choice for the foreseeable future. The dream of homeownership is becoming increasingly out of reach for many Americans, as housing costs continue to rise faster than people’s incomes.
