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Owning a home is now cheaper than renting in some housing markets

But experts say challenges remain for first-time homebuyers

Home prices and costs concept
Photo (c) Towfiqu Barbhuiya EyeEm - Getty Images
Home prices skyrocketed while rents fell at the beginning of the COVID-19 pandemic, with many urban renters purchasing single-family homes in the suburbs.

Home prices are still going up, but now rents are catching up and raising serious home affordability issues. It’s gotten to the point that Realtor.com reports it’s cheaper to buy a first home in many markets than to continue renting.

According to the online real estate marketplace, the U.S. median rental price increased by double-digits in January for the eighth straight month; it's currently up 19.8% year-over-year. Compared to growth in the monthly cost of buying a home with up to two bedrooms, all rental unit sizes posted higher yearly gains last month.

But Jacob Channel, senior economic analyst at LendingTree, says a first-time buyer has a lot of factors to consider, especially in this market. He says it may also be necessary to make some compromises.

“For the most part, making at least a few compromises is a common part of the home buying experience,” Channel told ConsumerAffairs. “By being able to parse out the difference between what they’d like and what they absolutely must have, homebuyers will be better able to determine whether or not a home will work for them.”

Consumers face harsh financial realities

Even when the upfront and monthly costs of owning a home are likely to exceed the costs of renting, financial experts say the long-term financial benefits of homeownership can outweigh the benefits of renting.

But there are other factors to consider. While the monthly payment on a mortgage might be less than the rent, Mayer Dallal, managing director at mortgage lender MBANC, told us that buyers must face some harsh financial realities.

“You have to run the numbers, get a pre-approval for a loan, make sure your credit is in order,” Dallai said. “But we're in a situation where inventory is low and demand and competition are high, and we'll also be seeing a rise in interest rates in 2022. It's a challenging market for the average first-time homebuyer. There is also competition from investors.”

Dottie Herman, co-founder and chief operating officer at Swipe4Free, said there are big responsibilities that come with buying a house rather than renting that need to be taken into consideration.

“Make sure that you are ready to buy a home because it is a commitment and you need to have a slush fund because there will be something that you have to repair and other unexpected costs,” Herman told ConsumerAffairs.

Across the 50 biggest U.S. metros in January, Realtor.com found that the median listing price for a starter home – $295,360 – was lower than the median overall. However, monthly starter home costs were slightly higher than rents after factoring in housing market costs like mortgage rates and HOA fees.

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