People in three-quarters of the 50 largest housing markets are better off continuing to rent than becoming a first-time home buyer, according to a new analysis from Realtor.com. Researchers say the shift took place in the first half of 2022 when mortgage rates nearly doubled.
It’s not that rents are cheap. But mortgage rates that are over 6% have simply made buying a home unaffordable for a large sector of the population.
"With rents and for-sale home prices both hitting record-highs in June, the rising cost of financing a home purchase stands out as the clear driver of rental affordability relative to typical starter homeownership costs,” said Realtor.com Chief Economist Danielle Hale.
While mortgage rates hovered around 3%, the cost of a monthly house payment was very competitive with rent, which increased last year at about the same rate as home prices.
"While more markets offered relative rental affordability in June than in January, rents are still rising across the country,” Hale said. “Plus, many of the areas that favored renting are among the biggest tech cities, where real estate tends to come at a premium.”
Median rent price hit a record high in June
The median price of a rental in the U.S. hit a new high for the 16th consecutive month in June, but it still was less expensive than the monthly ownership costs of a home. Although sale prices of homes also hit multiple record-highs in the first half of the year, Realtor.com's June analysis found that mortgage rate hikes were the biggest driver of the widening affordability gap between renting and first-time buying.
In June, it cost $1,876 a month to rent a typical home or apartment. That’s a 12-month increase of 14.1%.
People buying their first home were faced with ownership costs that were nearly 30% higher than rents in June. The typical monthly ownership cost was about $2,437. Realtor.com estimates that higher mortgage rates added about $416 to the average monthly house payment in June.
Erik Wright, CEO of New Horizon Homebuyers in Eastern Tennessee says people who are deciding whether to buy or rent should carefully crunch the numbers.
“I think the most important consideration is what can you afford for a monthly payment based on the current interest rates,” Wright said. “The price you can pay for a house has probably changed significantly from back when interest rates were around 3%.”
Large markets favor renting over buying
The Realtor.com analysis suggests that renting is the best choice in larger markets. The country's biggest tech cities accounted for eight of June's top 10 metros that favored renting over buying. That list was led by Austin, where the monthly starter homeownership cost was 97.8% higher than the median rental price. In all of the top 10 markets, renting was at least 52% more affordable than first-time buying.
Only 11 metro areas favored first-time buying over renting in June. It was more economical to rent a home in Cincinnati than to buy one in January, but the economics flipped during the first half of the year. In June, Cincinnati’s monthly starter home costs were $14 less than rental prices.
Pittsburgh is the most economical rental market in the top 50, with ownership costs averaging 33% less than rental costs. It’s followed by Birmingham and St. Louis.