Rent or own: the difference is ‘higher than at any time since the turn of the century’

The housing market may be slowing down, but owning a home is still an expensive proposition. Two graphs reveal exactly how expensive it is.

Just over a year ago, the monthly cost of owning and renting was virtually identical, according to a blog post from John Burns Real Estate Consulting. “Now owning a home costs $839 more per month than renting. This differential is nearly $200 higher than at any time since the turn of the century,” wrote Danielle Nguyen, senior research director at John Burns.

In residential properties, renting a house would cost around $1,962 per month, according to data from Redfin, as of April 2022. But if a landlord had put down a 7% down payment on a house, they would be stuck with a one mortgage that would cost them $2,114 a month, or $152 more.

“With demand now shifting towards rentals, homebuilders who were once reluctant to sell to rental investors are now soliciting offers from investors,” Nguyen added. “Strong investor demand will provide further support for today’s home prices.”

The historical gap between owning and renting can be seen in the graph below:

Looking ahead, however, Nguyen told MarketWatch, “High home prices and rising interest rates may impact home buyers.” Fewer people can now qualify for houses, she said. Indeed, first-time buyers are increasingly excluded from the country’s hottest real estate markets.

This homebuyer penalty is hitting harder in some places across the country, according to John Burns. In places where home prices have risen the most, such as Raleigh-Durham, Nashville, Denver, Tampa and Phoenix, owning a home was much more expensive than renting.

John Burns Consulting assumed buying a home at 80% of the current median price. They also assume that the buyer has paid a 5% down payment with a 30-year fixed rate mortgage.

To put that into context: A year ago, renting would have cost you $1,705 a month, compared to a monthly mortgage payment of $1,451, the National Association of Realtors said in a blog post in January.

The cost of owning a home has risen because house prices have soared since the start of the COVID-19 pandemic, as people moved out of crowded cities, helped by their ability to work remotely. Rising construction costs and a shortage of inventory also helped push up prices.

The typical home value as of May 31 was nearly $350,000, according to Zillow Z,
-0.46%.
In January 2020, just before the pandemic started spreading across the country, the typical home was valued at $251,000.

In March 2022, the median household represents about 38.6% of a person earning the median income of $68,000 per year, up from 30.2% in March 2021, according to the Federal Reserve Bank of Atlanta.

The Dow Jones Industrial Average DJIA,
+0.10%,
Nasdaq Composite COMP high-tech,
-0.20%
and S&P 500 SPX,
-0.16%
were clinging to positive territory on Tuesday after suffering significant losses on Monday.

Do you have ideas on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at [email protected].

Comments are closed.