A lot of people will tell you that “renting is cheaper than owning a home.” The concept makes sense when a person first enters adulthood or is trying to save up enough money to put down on a home. But rent prices have risen so much that it has negated rising home prices.
Mortgage rates remain at record low rates, sitting at 2.745% and as low as 2.4% for FHA loans.
The low mortgage rates have led to the average three-bedroom home costing less than renting in 63% of counties analyzed. Of course, there are always certain counties where housing prices are so high that renting is the only option for many people.
Caution: Home Prices Continue to Rise
In today’s market, there’s a lack of housing inventory to meet the strong demand, leading to housing prices rising and bidding wars. Of the counties in the study, home prices rose higher than rent prices in 83% of markets.
The higher housing prices would have, under past mortgage prices, fueled the rental market.
Low mortgage rates still allow potential homeowners to get into a home with lower mortgage payments than the typical rent in most cities. Renting rates have remained high, especially with a lot of people moving out of big cities, causing rent prices in some suburbs to rise.
If home prices continue to rise at the staggering rate we’ve seen in the past year, there may be a point in 2021 where renting is more affordable. But at this time, during the first quarter of the year, renting is more expensive than homeownership.
Where Homeownership Remains Most Affordable
Certain regions have more affordable homeownership than others. In areas where there are populations of less than 500,000, homes tend to be more affordable. Counties in the following regions are most expensive:
The South and Midwest have the most affordable housing prices.
Counties in the country where buying is most affordable, compared to current rental prices, are:
- St. Louis
In comparison, the areas where renting is more affordable than purchasing a home are areas where populations are high. A staggering 18 out of 25 of the most populated counties have rental prices that are lower than mortgage prices.
Los Angeles, San Diego and Cook County, Illinois, are areas where potential homebuyers may be better off renting than buying a home.
Wage Concerns May Impact Future Affordability
Housing prices are rising faster than wages in nearly two out of three markets in the country. Rent prices are growing slower in 80% of markets than wage growth. There may come a time in some of these counties where renting and ownership are on par with each other in terms of affordability.
If the housing market continues to appreciate, it may become less affordable to own a home than rent.
Higher housing inventory may be able to quell the housing price surge and help keep ownership affordable. With many great homebuying opportunities and low mortgage rates, every potential renter should consider purchasing a home if their finances allow.