Realtor.com’s latest rental report shows a marked change in the U.S. housing market, as it has become more financially advantageous to rent a home than to buy in all 50 largest metropolitan areas. This trend, which has been observed since February, is caused by increased mortgage rates, high home prices and falling rents. However, a milestone was reached in July when renting became more affordable than buying in all major metropolitan areas, a change from the previous year when only 47 metropolitan areas favored renting.
Renting vs. Buying: A Financial Analysis
Last month, the cost of buying a home was, on average, $1,067 per month higher than renting, a 61.3% premium. This financial disparity underscores the growing economic burden of homeownership in the current market. In particular, cities like Memphis, Tennessee; Birmingham, Alabama; and Pittsburgh, Pennsylvania have made a transition from purchase-advantaged to rent-advantaged markets over the past year.
Austin, Texas, tops the list of cities where renting is most financially advantageous. In Austin, the monthly cost of buying a home was $3,558, which is 144.4% more than renting, resulting in monthly savings of $2,120 for renters. Other cities where renting significantly beats buying include Seattle, Los Angeles, San Francisco, and New York.
The dwindling advantage of renting
Despite the clear financial benefits of renting, that advantage is fading in some areas. Compared to last year, the cost gap between renting and buying has narrowed by 2 percentage points, largely due to an increase in affordable home listings. The average monthly cost of buying an entry-level home in the 50 largest metros was 63.3% higher than renting last year, and 61.3% higher this year. This shift suggests a slight easing in home prices, although renting is still more economical overall.
The decline in rental advantage is most pronounced in cities such as San Francisco, San Jose, Denver, Washington, DC and Miami, where real estate prices have fallen significantly. However, this trend is not seen in all metropolitan areas. Rents have become more affordable in Memphis and Birmingham, partly due to increased investor activity in these markets.
Rent decline year-on-year
July was the twelfth consecutive month in which rents for 0-2 bedroom properties fell year-on-year. This sustained decline in rental costs underscores the financial attractiveness of renting over buying, particularly for first-time buyers facing high mortgage rates and property prices.
Top cities with preferred rental housing situation
The report lists the top 10 metropolitan areas where renting offers the greatest savings compared to buying:
- Austin-Round Rock-Georgetown, TX: Buying costs 144.4% more than renting, with a monthly savings of $2,120.
- Seattle-Tacoma-Bellevue, WA: 107.7% more, $2,222 savings.
- Los Angeles-Long Beach-Anaheim, CA: 99.5% more, $2,784 savings.
- Nashville-Davidson-Murfreesboro-Franklin, TN: 93.3% up, $1,399 savings.
- Phoenix-Mesa-Chandler, AZ: 91.6% more, $1,396 savings.
- Columbus, OH: 91.3% more, $1,090 savings.
- Dallas-Fort Worth-Arlington, TX: 88.3% more, $1,307 savings.
- San Francisco-Oakland-Berkeley, CA: 88.2% up, $2,442 savings.
- New York-New Jersey-Jersey City, NY-NJ-PA: 81.1% up, $2,342 savings.
- Boston-Cambridge-Newton, MA: 78.6% more, $2,336 savings.
Impact on the market
Current market dynamics pose a challenge for prospective homebuyers, especially first-time buyers. While renting remains the cheaper option, the narrowing gap between renting and buying points to potential future changes. As more affordable homes come onto the market and mortgage relief measures come into force, the financial advantage of renting could continue to diminish.
Ralph McLaughlin, senior economist at Realtor.com, points out that while renting is still more economical, the market is evolving. “We’re seeing the advantage of renting over buying diminish in several metropolitan areas, especially as more affordable options come onto the market,” McLaughlin explained. This shift could provide a path into the real estate market for first-time buyers, although that path still faces financial hurdles.
