In the vast majority of U.S. real-estate markets, renting is still cheaper than owning, according to a new report from Attom that looked at renting versus owning three-bedroom homes.
The analysis revealed that home buyers can’t seem to catch a break in this market. As mortgage rates fall from two-decade highs, home prices continue to rise, keeping the cost of owning high.
In contrast, renting is a lot more affordable: Median rental rates require a smaller portion of wages than buying a home in 296 out of 338 counties in the U.S., or 88%, Attom said.
The real-estate data analytics company looked at single-family home prices between January and November 2023, as well as rental and wage data, for 338 U.S. counties with enough data to analyze.
“Continuously increasing home prices contribute to the escalation of rental costs, making both buying and renting properties a challenging endeavor across most of the United States,” Rob Barber, the CEO of Attom, said in a statement. “But the latest data shows that even as rents are growing faster, they remain more affordable than owning.”
Housing market pushing prices up due to ‘lock-in effect’
As mortgage rates finally start to slide downward, offering some relief for aspiring homeowners, the increase in home prices due to a lack of homes for sale is offsetting those gains.
The median price of a home in 2023 was $389,800, a record high, according to the National Association of Realtors.
As mortgage rates stay far above where they were during the pandemic, when they averaged around 2% to 4%, many homeowners are unwilling to sell for fear of having to buy another home with a mortgage rate of 6% or higher. That’s creating what those in the real-estate industry call the “lock-in effect.”
A combination of the lock-in effect and elevated home prices led home sales to crater in 2023 and fall to their lowest level since 1995.
In contrast, rents have been falling for at least the last three months, according to private data sources.
“The current situation favoring renting over buying reflects a combination of housing-market trends that offer limited straightforward options for home seekers but ultimately lean towards the advantage of rentals,” Attom said in its report.
The most expensive and cheapest places to buy versus rent
Comparing the most populous U.S. counties, the report found that renting took up a significantly smaller share of average local wages than owning in the following areas:
In Honolulu, buying would eat up 134% of a person’s average local wages, while renting requires only 67%. In Brooklyn, N.Y., located in Kings County, owning would consume 136% of a person’s average wages, while renting would take up 72%. And in Oakland, Calif., which is in Alameda County, the share of wages needed to own would be 108%, versus just 51% if one were to rent.
On the flip side, it is more affordable in some counties to buy a home rather than rent. In Riverside County, Calif., the median rents consume 101% of average local wages, while typical homeownership costs would only take up 91% of those wages.
A similar dynamic plays out in Wayne County, Mich., where Detroit is located. In that county, owning a home would only take up 19% of average local wages, versus 22% if one were to rent.
The report assumes that buyers put a 20% down payment on their home.
Other affordable markets where owning won’t eat up too much of a person’s wages includes Montgomery County, Ala.; St. Louis city and county; Bibb County, Ga.; and Caddo Parish, La.
