Renting is Cheaper than Buying in US Cities

HOUSTON – (Realty News Report) – It’s now cheaper to rent than to buy a house in every major city in the nation, according to the new Realtor.com Rental Report.

In February, the mortgage payment on a starter home in the nation’s largest cities cost $1,027, of 60 percent more than the monthly rent on average, the report said.

Austin leads the nation in places where renting is more affordable than buying a home. Houston ranks tenth. In the past, home buying compared favorably to renting in many locations.

“With rents continuing to fall and the cost of buying a home remaining high, exacerbated by the rise in mortgage rates in the later half of 2023, renting a home is now a more cost-effective option in all major U.S. markets,” said Danielle Hale, Chief Economist at Realtor.com. “Deciding whether to rent or buy often goes beyond a financial advantage though, and likely depends on a consumer’s circumstances. Renters often prize flexibility while the biggest reasons homebuyers cite are that they want a place of their own and to be closer to family and friends. The financial scales have tipped monthly costs in favor of renting over buying, but it does not bring the benefit of housing wealth gains over time that owning does and movers should consider their long-term housing plans and personal situation as they make this decision.”

Today’s first-time homebuyers face the challenge of collecting wealth for a down payment in era following a big home price increases in recent years.

In addition, home buyers also face much higher mortgages. The 30-year fixed mortgage rate remained elevated at 6.78 percent in February 2024 compared to 6.26 percent 12 months ago. Two or three years ago, mortgages were available at less than 4 percent.

Falling rents also make a difference. Apartment developers went on a construction binge in recent years, and the supply is putting downward pressure on rents.

More than 1 million apartment units are now under construction in the nation, the most since 1973, according to the National Association of Home Builders. Digesting the supply bubble of new apartments will take a while, even though multifamily starts will fall 20 percent in 2024, the NAHB forecasts. In the meantime, rents will be soft through 2025.

The Realtor.com study compares the cost of buying an inexpensive starter home with the cost of renting a variety of apartments as well as the rentals of condos, townhomes, single-family homes, including houses owned by individual landlords.

Austin where the monthly cost of buying a starter home was $3,695 – 141.5 percent more than the monthly rent of $1,530, for a monthly savings of $2,165 – topped the list of markets most favoring renting.

Houston ranked tenth with the monthly cost of buying a starter home was $2,482 – 80 percent more than the monthly rent of $1,379 for a monthly savings of $1,103.

Other top markets favoring renting over buying were Seattle, Phoenix, San Francisco and Los Angeles. Metros with diminishing rental advantages were San Jose, Calif.; Dallas; San Francisco; Columbus, Ohio; Miami; and Minneapolis.

The top 10 metros with the largest rent versus buy savings:

Austin-Round Rock-Georgetown, Texas – $2,165 monthly rent savings (141.5% difference)
Seattle-Tacoma-Bellevue, Wash. – $2,422 (121.1%)
Phoenix-Mesa-Chandler, Ariz. – $1,528 (99.0%)
San Francisco-Oakland-Berkeley, Calif. – $2,689 (95.5%)
Los Angeles-Long Beach-Anaheim, Calif. – $2,539 (89.7%)
San Jose-Sunnyvale-Santa Clara, Calif. – $2,780 (86.7%)
Nashville-Davidson-Murfreesboro-Franklin, Tenn. – $1,366 (86.0%)
Portland-Vancouver-Hillsboro, Ore. Wash. – $1,396 (84.4%)
Sacramento-Roseville-Folsom, Calif. – $1,514 (82.1%)
Houston-The Woodlands-Sugar Land, Texas – $1,103 (80.0%)

In February, the average price of a single-family home in Houston rose 4.1 percent to $400,252 and the median price increased 3 percent to $329,686, in comparison to February 2023, the Houston Association of Realtors said.