Ever-increasing mortgage rates are turning the hot rental market into a more viable option. According to a new study out from realtor.com, the gap between monthly starter homeownership costs and rents widened by 25.5 percentage points (+$483) from January to June of this year.
“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. In fact, our analysis shows that if not for higher mortgage rates, the rent versus first-time buying gap would have shrunk in the first half of this year, as rents grew more quickly than starter home prices,” said realtor.com Chief Economist Danielle Hale. “While more markets offered relative rental affordability in June than in January, rents are still rising across the country. Plus, many of the areas that favored renting are among the biggest tech cities, where real estate tends to come at a premium. As housing affordability remains a challenge for many Americans, it’s key to stay on top of how higher costs impact your budget, whether renting or first-time buying.”
Additionally, more than three-quarters of the 50 largest U.S. metros favored renting in June, compared to just under half of these markets in January.
In June, the national median rental price hit a new high of $1,876, rising 14.1 percent year-over-year. All unit sizes posted double-digit annual gains: Studios, up 15.1 percent; one-bedrooms, up 13.8 percent; and two-bedrooms, up 13.6 percent.
Nationally, monthly starter homeownership costs were an average of 29.9 percent ($561) higher than rents in June, up from 4.4 percent ($78) in January.
In 2021, the monthly cost to buy was $1,815, just $171 higher than rents nationwide.
Of the 50 largest U.S. metros, 38 offered lower rents than monthly starter homeownership costs in June, compared to just 24 markets in January.
Austin, San Francisco and Seattle topped the list of metros that favored renting over buying. San Jose came in at no. 5, followed by L.A. at no. 7.
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