Rent Reaches Another Historic High – So Why Is It Still Cheaper Than Buying a Home?

Stock photo of condominium apartment buildings with parking lot and back yard in Dallas, Texas, USA.
Arpad Benedek / Getty Images/iStockphoto

The U.S. median rental price hit a record high for the 16th consecutive month in June but renting remains cheaper than buying a home. Indeed, the four-decade high inflation, soaring mortgage rates and rapidly increasing interest rates make house affordability more difficult for many Americans.

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The new Realtor.com report shows that in June, the U.S. median rental price hit a new high of $1,876, rising 14.1% year-over-year, the fifth consecutive month of moderation from January’s peak of 17.3%, according to a press release.

Despite the decline, rents remained 27.6% higher than in 2020 and all unit sizes posted double-digit annual gains, with studios being up 15.1%; one bedroom being up 13.8%, and two bedrooms being up 13.6%.

Nonetheless, renting an apartment is still cheaper than buying a home. The Realtor.com data shows that the gap between monthly starter homeownership costs and rents widened by 25.5 percentage points — +$483 — from January to June, according to the release.

“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,” Realtor.com Chief Economist Danielle Hale said in the release.

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“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.”

This is also reflected in the number of mortgage applications, which decreased 6.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 15, 2022.

“Mortgage applications declined for the third week in a row, reaching the lowest level since 2000. Similarly, with most mortgage rates more than two percentage points higher than a year ago, demand for refinances continues to plummet, with MBA’s refinance index also falling to a 22-year low,”  Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, said in a press release. “Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand.”

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The Realtor.com data also shows that of the 50 largest U.S. metros, 38 had lower rents than monthly starter homeownership costs in June, compared to 24 markets in January.

The country’s biggest tech cities accounted for eight of June’s top 10 metros that favored renting over buying,  with Austin, Texas where the monthly starter homeownership cost was 97.8% -$1,822- higher than the median rental price.

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“Whether you’re looking for a rental or trying to buy your first home, our analysis highlights the importance of prioritization when deciding where to live,” Joel Berner, Senior Economic Research Analyst for Realtor.com, said in the release. “Take the example of areas with smaller gaps between rents and monthly starter homeownership costs, which may still offer relatively affordable starter homeownership costs. Many of these metros are also attracting home shoppers from out-of-state, in turn driving up the overall cost of living. For first-time buyers prioritizing lower home prices, you may still find options in these areas, but make sure to account for higher costs of other expenses in your budget.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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