In a continued trend that started at the onset of the COVID-housing market, it now costs $1,030 more each month to buy a typical home than to rent one.
That’s up 17 percent from a year ago, according to new research shared by John Burns Real Estate Consulting.
The increase is due to mortgage rates that have continued to inch higher throughout the past year, low supply and a drop in demand that has kept prices elevated after a historic jump in prices.
“Even higher mortgage rates and still elevated resale prices continue to challenge for-sale housing affordability — resulting in a higher-than-usual number of home renters staying in place and even more buyers moving to the sidelines as they can no longer afford to purchase a home,” John Burns’ researcher Danielle Nguyen said in the report.
In 2021, it was more expensive to rent than to own in 60 percent of the U.S., according to property data firm Attom. That dynamic quickly shifted in 2022, and it now costs more each month to buy than to rent in 95 percent of the counties Attom tracks.
That monthly premium varies by market, with the Midwest and Sun Belt having the smallest gap between renting and owning.
The monthly premium to buy versus rent is down from a peak in October, but it remains much higher than typical, John Burns said.
While the metric doesn’t account for possible short- and long-term gains in equity through home ownership, it does shed light on a stark divide between the cost of buying a home today.
High rates are contributing to the high cost of ownership. Typical monthly payments jumped about 60 percent as interest rates spiked over the past year and a half, according to CoreLogic. Meanwhile, the median home price jumped 40 percent between early 2020 and March, according to the Case-Shiller National Home Price Index.
More than 9 out of 10 homeowners with a mortgage have a rate that is less than 6 percent, according to new research from Redfin. More than 82 percent of owners have a rate that’s below 5 percent. The typical 30-year mortgage is 6.7 percent, the online real estate brokerage reported.
“High mortgage rates are a double whammy because they’re discouraging both buyers and sellers,” Taylor Marr, Redfin’s deputy chief economist, said. “They’re discouraging sellers so much that even the buyers who are out there are having trouble finding a place to buy.”
There are 38 percent fewer homes for sale now than in 2018, Redfin said.
The ongoing standoff between buyers and sellers and the high cost of ownership is expected to increase demand for rental homes and reduce demand for buying a home, John Burns researchers said.
“Resale supply is very low,” Nguyen said. “Historically low resale competition available for purchase as the lock-in effect takes hold as homeowners are unwilling to relinquish their very low mortgage rates for today’s 6 percent-plus rates, suppressing overall supply as they stay in place.”
The firm has tracked the growth of interest in neighborhoods that are built-for-rent, or single-family homes owned by investors and rented out monthly. Earlier this month, the New York-based investment firm Pretium Partners announced it would buy 4,000 newly built homes from one of America’s largest homebuilders for $1.5 billion.
The sale comes at a time when rent growth has slowed across the country and even reversed in some markets, according to multiple reports.
But with would-be buyers blocked from ownership due to high prices and low supply, it’s expected to put upward pressure on rents.
“Challenging affordability — high mortgage rates and elevated prices — may keep tenants in place and demand elevated,” Nguyen said, “pushing rents back up.”
