As per data from Realtor.com, in the month of February, the average monthly cost of purchasing a starter home was about $1,027 more, that is 60.1% higher than renting equivalent property in the U.S.'s largest 50 metro regions. Over the past half-year, there's been a consistent dip in rental prices on a year-over-year basis. Simultaneously, the average mortgage interest rates remained higher than the same span the previous year, which further escalated the costs of buying homes.
In February, the median rent across the U.S. witnessed a downfall of 0.4% or $7 year-over-year, though it's still $50 lesser than the highest rental rates recorded in August 2022. If one were to buy a starter home at the listing prices seen last year, the cost would be $101 more than it would have been under the previous year's mortgage rates. Hence, the cost difference between owning and renting a two-bedroom house expanded by $7.
The researchers at the Joint Center for Housing Studies at Harvard stated, "We are experiencing an accelerated decline in rental markets after a significantly overheated phase. Rent growth has nearly plateaued, succeeding historically steep rent spikes in 2021 and 2022."
It's important to understand that the choice to rent or buy is influenced by more than just the amount of monthly rent or mortgage to be paid. While homes are traditionally viewed as an investment due to their potential for price appreciation, additional costs like HOA fees, taxes, insurance, and maintenance must also be factored in when purchasing a home.
Contrastingly, for renters, upkeep and repair costs are typically not their responsibility, and they usually have a fixed monthly payment for the entire length of their lease. The risky part for renters is the potential for price increases when renewing their lease.
One universal challenge impacting both buyers and renters is the limited availability of properties. High interest rates have discouraged many from selling their homes, that were bought with lower borrowing costs, resulting in fewer houses on the market. This phenomenon has created a logjam in the housing market and has had economists hoping that new construction will boost availability.
Contrarily, only a third of all rental units are single-family homes, with the remainder being apartments or other forms of multifamily housing, as per the research conducted by the Brookings Institution. However, the rental space demand has stabilized post-pandemic, and has nearly recovered to its pre-pandemic levels, as reported by the Join Center for Housing Studies at Harvard.