The latest Realtor.com Rental Report reveals a significant shift in the US housing market, as renting a starter home has become more financially advantageous than buying in all of the 50 largest metropolitan areas. This trend, observed since February, is driven by elevated mortgage rates, high home prices, and a decline in rents. However, in July, a milestone was reached in which renting became more affordable than buying in all major metros, a change from the previous year when only 47 metros favored renting.
Renting vs. Buying: A Financial Analysis
Last month the cost of purchasing a starter home was, on average, $1,067 higher per month than renting, representing a 61.3% premium. This financial disparity underscores the growing economic burden of homeownership in the current market. Notably, cities like Memphis, Tennessee; Birmingham, Alabama; and Pittsburgh, Pennsylvania have transitioned from buy-favoring to rent-favoring markets over the past year.
Austin, Texas, leads the list of cities where renting is most financially advantageous. The city's monthly cost of buying a starter home was $3,558, which is 144.4% more than renting, resulting in a monthly savings of $2,120 for tenants. Other cities where renting significantly outweighs buying include Seattle, Los Angeles, San Francisco, and New York.
The Shrinking Advantage of Renting
Despite the clear financial benefits of renting, the advantage is beginning to diminish in some areas. Compared to last year, the rent-buy cost gap narrowed by two percentage points, primarily due to an increase in affordable home listings. The average monthly cost of buying a starter home in the top 50 metros was 63.3% higher than renting last year, compared to 61.3% this year. This shift indicates a slight easing in home prices, although renting remains more economical overall.
The reduction in the renting advantage is most pronounced in cities like San Francisco, San Jose, Denver, Washington, D.C., and Miami, where home prices have seen significant declines. However, not all metros are experiencing this trend. Memphis and Birmingham have become more rent-favoring, partly due to increased investor activity in these markets.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
