The Cost of Homeownership Still Higher Than Renting

The American dream of homeownership has shifted again to finding an affordable single-family rental, as the costs of purchasing a house climbed. The monthly premium to own versus rent a starter home hit $1,030 per month, versus $884 a month last year, according to an article by Danielle Nguyen in a John Burns Research and Consulting report.

The reasons for the climb have been cited often: higher mortgage rates, elevated resale prices and low for-sale inventory, all of which have stopped a greater than usual number of home renters from buying. Instead, they remain in their rental homes longer, said Nguyen who talked with GlobeSt.com about this trend.

There have been many ups and downs over time in the costs of owning versus renting. It was cheaper between about 2009 to 2013 to rent. “But then owning really started to soar in 2021 due to COVID-19 demands for space and homes,” Nguyen said.

However, the homeownership premium, while higher than usual, is down from $1,188 last October 2022. Also, individual markets reflect great differences in price and attainability. The homeownership premium is less in the Midwest and some other markets such as Atlanta and Tampa, she said, making homeownership in such locations more of a possibility. In fact, the premium for homeownership is below the $1,030 national average in 15 of the 20 most popular markets for renting a single-family home as an investment. That’s because homes in those markets can be purchased by landlords at prices where the rents achieved a good yield for the landlord-investors.

In the most expensive markets such as San Francisco and New York, the homeownership premium is substantial and single-family rental landlords are not able to expand their businesses. “There aren’t a lot of homes rented in such areas since it’s so expensive to own,” Nguyen said.

Three locales where the premium to own rather than rent are unusually high are Austin where it hit $1,664, Denver where it is $1,410 and Riverside-San Bern at $1,109. Where the premium still exists but is much lower starts with Indianapolis at $117, Cincinnati at $181 and Columbus at a bigger jump of 24% to $413.

For this survey, Burns defined the cost of ownership as a combination of payment and maintenance with a 5% down payment and a 30-year fixed-rate mortgage. It also values single-family rent at 80% of the current median-priced existing home.