Those early pandemic cheap rents are long gone: In 26 cities, buying a home is now more affordable than renting.
As far as rental rates go, it’s definitely not 2020 anymore.
The cost of renting a home is rising at the fastest rate in years as homeowners recover from their struggles earlier in the COVID-19 pandemic. For some households, soaring rental prices will make home ownership even more out of reach.
The overall median rent nationwide in January was $1,789 per month, according to a new report from Realtor.com. This represents an increase of 19.8% over the previous year. January was the eighth consecutive month in which rents increased by more than 10% on an annual basis.
And relative to the price of a two-bedroom home, rent appreciation has outpaced home price growth in all rental unit sizes. Median rents for bachelor apartments increased by 21%, while the cost of renting one- and two-bedroom rental units increased by 19.2%. By comparison, the purchase price of a two-bedroom home has only increased by 11% over the past year.
“U.S. rental markets are more than making up for lost time, with January data showing national rents continued to rise in double digits from a year ago – and at a faster rate than home prices in sell,” said Danielle Hale, chief economist at Realtor.com. said in the report. “So much faster, in fact, that even though monthly costs for a first home were rising in many buy-to-let markets, rents for a similarly sized unit were 20% higher.”
In many cities, buying a house is more affordable
The Realtor.com report compared the cost of buying a home with the cost of renting in the nation’s 50 largest cities. In 26 of these places, buying a home was cheaper than renting. On average, buying a home in these areas was more than 20% cheaper than renting, in terms of monthly outgoings.
The best place to buy, rather than rent, was Birmingham, Alabama, where households could save more than 44% on housing costs if they purchased a home. Realtor.com calculated the cost of buying a home in each market by averaging median list prices for homes of different sizes and assuming the buyer made a 7% down payment and had a 3% mortgage. .45% interest. Housing costs also take into account taxes, insurance and homeowners association dues.
“In Austin, Texas, buying a home involved monthly costs 76% above the median rent.”
Overall, most of the markets where it was most affordable to buy were “secondary” cities – places with smaller populations, mostly in the South and Midwest. Other cities where buying was much more affordable than renting include Cleveland, Pittsburgh, St. Louis, and Detroit.
At the other end of the spectrum, tenants are the money-saving ones in “Big Tech” cities. Austin, Texas earned the dubious distinction in Realtor.com’s analysis of being the cheapest city to rent versus buy a property. Buying a house resulted in a monthly cost that was 76% higher than renting. Other cities where this was true included New York, San Francisco, San Jose, and Seattle.
“For young Americans like Gen Z who may have moved to save money during COVID, renting in a big tech city offers flexibility and relative affordability even as rents pick up in those areas,” Hale said.
Black Americans stand to lose as rents rise
The homeownership gap between white and black Americans is widening, even as the overall homeownership rate has seen record increases. A new report from the National Association of Realtors found that the homeownership rate in the United States in 2020 – the most recent year for which data was available – stood at 65.5%, or an increase of 1.3% over the previous year.
But the homeownership rate among Black Americans was just 43.4% and remains below its previous peak of 44.2% in 2010. Meanwhile, the homeownership rate for Hispanics reached 51.1%, surpassing the 50% mark for the first time on record. . Among white Americans, the homeownership rate is over 72%.
“As the gap between homeownership rates for black and white Americans has widened, it’s important to understand the unique challenges faced by minority homebuyers,” said Jessica Lautz, vice -Chair of Demographics and Behavioral Insights at the National Association of Realtors. report.
“Housing affordability and low inventory have made it even more difficult for all buyers to access homeownership, but even more so for black Americans,” Lautz added.
A variety of factors represent barriers for Black Americans seeking homeownership. Half of black Americans who rent spend more than 30% of their income on housing — and more than a quarter of black renter households are heavily cost-burdened, spending more than half their monthly income on rent. By comparison, only 20% of white renter households were heavily burdened by costs.
““Housing affordability and low inventory have made it even more difficult for all buyers to access homeownership, but even more so for black Americans.””
Income is a factor that explains these differences. According to the Realtors report, based on median income alone, about 47% of white renter households can qualify to buy a home, compared to just 36% of their black peers.
Additionally, black households were much more likely to have student loan debt. This was the case for two in five black households, compared to about one in five white households.
“This makes it difficult for black households to save for a down payment and as a result they often use their 401(k) savings or retirement savings to access homeownership,” Lautz said.
As long as black families face these and other hurdles to homeownership — black and Hispanic applicants are more likely to be turned down for mortgages than their white neighbors — they will not only be subject to a spike in rents, but will also have fewer opportunities to grow their wealth. An analysis of title insurance company First American FAF,
found that the median homeowner has 40 times the wealth of someone who rents out their home, highlighting how homeownership remains the primary route to wealth growth for most Americans.