Some renters across the U.S. are eyeing homeownership as double-digit rental hikes threaten affordability, but prospective buyers face a similar predicament with endless price increases, rising mortgage rates, and limited supply. So, what’s cheaper—renting or buying?
According to Realtor.com, it depends on location. Homeownership is the better option in roughly three-quarters of the 100 largest metropolitan areas, especially with the added bonus of building equity. In markets like Fort Myers, Florida, warm weather and reasonably priced homes offer an oasis for buyers with comparatively high housing supply and a median home price $50,000 less than in Miami. On the contrary, markets with burgeoning tech scenes and limited space for affordable housing may be better options for renters, especially in cities like San Jose, California, where rental prices are actually falling, though by less than 1%.
“Places where it’s better to rent tend to have much higher-paying jobs, and as a result of that, both home prices and rents are going to be elevated—but home prices much more so,” says George Ratiu, manager of economic research for Realtor.com. That means these places have a high barrier to entry for buying homes.
Home prices have risen significantly since the start of the COVID-19 pandemic, as buyers flush with savings were able to make the move to become homeowners.
Meanwhile, in part because of a national eviction moratorium and partly due to underbuilding, vacancy rates in rentals have reached the lowest level since at least the 1980s, according to the St. Louis Federal Reserve. That means more people are vying for fewer units, making them more costly.