The Cost of Starter Homes Are Below Apartment Rents in Many Markets

It’s never easy to time the market (especially the housing market) but data released this week by Realtor.com suggests that buying a starter home now costs less per month than renting a similar-sized unit in 24 of the 50 largest US metros, according to the Realtor.com Monthly Rental Report.

Realtor.com’s July monthly survey suggests this is the time to buy a starter home rather than rent in many markets.

As singles and families consider employment and lifestyle choices that continue to show flexibility in the “work from home” and “work from anywhere” environment, as well as national health situations, consumers are seeing a competitive balance in the age-old “rent vs. buy” debate lean toward starter homes.

The top markets where Realtor.com shows it’s more affordable to buy a starter home versus renting one include: Birmingham, Ala. (33.1% lower), St. Louis (29.4% lower), Pittsburgh (27.7% lower), Orlando (25.9% lower) and Cleveland (25.7% lower).

Rents Rising at Unusually Fast Pace

Nationally, rents continued rising at an unusually fast pace in July, up 9.8% over last year and 12.2% since 2019. All unit sizes tracked by Realtor.com posted rent gains and hit new highs: Two-bedrooms at $1,802 (+10.9%), one-bedrooms at $1,495 (+9.5%) and studios at $1,315 (+5.6%).

Rents hit new highs in 40 of the 50 largest US metros this July and grew at an almost double-digit pace—the fastest yearly rate we’ve seen in the last 18 months, according to Realtor.com Chief Economist Danielle Hale.

Hale added, many of July’s highest rent gains were seen in secondary markets where rental demand has exploded during COVID, driven in part by remote work enabling employees to escape crowded, expensive big cities—at least temporarily. 

With the future of remote work uncertain for many Americans, first-time homebuyers saw less of a frenzy than renters in a number of July’s highest-priced rental markets. This has helped keep monthly starter home costs an average 15.5% ($216) lower than rents in nearly half of the 50 largest US metros.

Homes Come In 24.3% Lower than Apartments

In the top 10 metros that favored first-time homebuying over renting in July, monthly starter home payments were an average 24.3% lower than rents, driven in part by lower median listing prices ($192,000) than the national average ($297,000). 

The types of starter homes for sale also play a key role in monthly payments, with active inventory in these buyer-friendly metros including nearly two times the share of single-family starter homes (56.1 percent) than in condo-heavy markets that favor renting.

In July, the top 10 markets that favored buying over renting were: Birmingham, Ala. (33.1% lower), St. Louis (29.4% lower), Pittsburgh (27.7% lower), Orlando (25.9% lower), Cleveland (25.7% lower), Tampa (22.9% lower), Baltimore (20.5% lower), Indianapolis (20.4% lower), Virginia Beach (19.2% lower) and Riverside, Calif. (18.5% lower).