Renting More Cost-Effective than Buying in Most Major U.S. Metros

A new report shows there are only three U.S. metro markets left where buying a starter home is more cost effective than renting one.

By Rethinking65

Recent data reveals a shift in the U.S. housing market, with renting now surpassing buying in affordability in all but three of the country’s largest metropolitan areas.

According to the August 2023 Monthly Rental Report by Realtor.com, buying a starter home in the top 50 metros averaged a staggering 60.3%, or $1,111, more than renting.

Only three of the top 50 U.S. metro areas — Birmingham, Alabama; Memphis, Tennessee; and Pittsburgh — favored buying starter homes than renting. Yet, even in these cities, the benefits of buying have declined since last year.

In the top 10 metros that favor renting over buying, most of which have a higher concentration of tech workers and high earners, both the average cost to rent and to buy are higher than the national average.

Austin, Texas topped the list of markets that favor renting, where the monthly cost of buying a starter home was $3,946 — 136.3% more than the monthly rent — for a monthly savings of $2,276. Meanwhile, Baltimore and St. Louis flipped from buy-favoring to rent-favoring markets during the past 12 months.

 

This comes as the country grapples with high mortgage rates, escalating home prices, and an unusual decline in median rents for the fourth straight month.

But despite declining rents, they still remain notably above pre-pandemic figures.

“The combination of the ongoing high mortgage rates and home prices explains why many potential homebuyers are holding off on their purchasing decisions,” said Danielle Hale, Realtor.com’s chief economist, in a press release.

The rental-price decline trend, coupled with mortgage rates above 7%, further tilts the balance in favor of renting. As of August, the expense of homeownership has overshadowed the rental costs by nearly $300, a significant rise from the beginning of the year.

Additionally, the median asking rent for the 50 largest metros dropped to $1,752, which, though a decrease from last month’s figures, still remains 23.7% or $336 more than the rates in 2019, before the pandemic.

Highlighting the market shift, 47 out of the top 50 metros found renting a starter home more affordable than purchasing one in August. This is a jump from 45 metros in the previous year, driven by falling rents and the rising costs of home acquisition. Austin, Texas leads the list where buying is notably more expensive, costing 136.3% or $2,276 more than renting.

In buy-favoring markets, on average, buying a starter home in August was only $29 cheaper than renting. In comparison, the savings from buying rather than renting had been $192 a year ago.

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