Where is Rent Cheapest vs. Buying a New Home?
There’s plenty of evidence that home prices are out of control.
For example, the median existing-home sales price hit $416,000 in June, jumping 13.4% from a year earlier, according to the National Association of Realtors. That represents 124 straight months of year-over-year increases, the longest streak on record.
And the S&P CoreLogic Case-Shiller Home Price Index registered a whopping 20.4% gain in the 12 months through April.
So it’s no surprise that in 38 of the 50 largest US metropolitan areas, the monthly cost of renting a home was lower than buying a starter home in June, as Realtor.com reported July 21.
The median U.S. rental price hit a record high (for the 16th consecutive month) of $1,876 in June. But the monthly cost for starter homes totaled $2,437, or 29.9% higher than rent.
Reversal from Beginning of Year
“This is a stark difference from earlier this year,” said Realtor.com economists Joel Berner and Danielle Hale. “When we conducted this same analysis in January, just 24 markets favored renting.”
Decelerating rent growth has contributed to this shift. Year-over-year rent growth peaked at 17.3% in January and has since slid in every month, with June rent just 6.3% higher than January.
“The biggest driver, though, is that the cost of financing a home purchase has skyrocketed in the first half of the year,” Berner and Hale said. “The average 30-year fixed mortgage rate as reported by Freddie Mac was 3.45% in January compared to 5.52% in June.”
Looking past June, the 30-year fixed-rate mortgage averaged 5.54% as of July 21, way up from 2.78% a year ago, Freddie Mac reported.
“The housing market remains sluggish as mortgage rates inch up for a second consecutive week,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
“Consumer concerns about rising rates, inflation and a potential recession are manifesting in softening demand. As a result of these factors, we expect house price appreciation to moderate noticeably.”
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Getting back to renting versus buying a home, here are the top five metropolitan areas where renting is cheaper than buying. Realtor.com. measured by the difference in price between the two (buy minus rent) divided by the rental price.
1. Austin-Round Rock, Texas: 97.8%.
2. San Francisco-Oakland-Hayward: 79.9%.
3. Seattle-Tacoma-Bellevue: 78.3%.
4. New York-Newark-Jersey City: 70%.
5. San Jose-Sunnyvale-Santa Clara, Cal.: 65.4%.
Here are the top five metros that favor buying over renting, as measured by the same metric.
1. Pittsburgh: -33%.
2. Birmingham-Hoover, Ala.: -29.5%.
3. Saint Louis: -20.7%.
4. Cleveland-Elyria: -13.8%.
5. Baltimore-Columbia-Towson: -9%.