A new report from Realtor.com finds that renting a starter home is less expensive than buying one in all 50 of the largest metros in the United States, sometimes by a wide margin.
Assessing rents overall
The report looked at the median asking rents for studio, one-bedroom and two-bedroom apartments and found that they fell month-over-month and year-over-year in February. Realtor.com reported that the average rent for a studio to two-bedroom apartment fell $4 for the month to $1,708. Year-over-year, rents were reported to fall $7, or 0.4 percent. By contrast, reports from both Apartment List and Yardi Matrix indicated that rents rose month-over-month in February. However, only Yardi Matrix found that rents rose year-over-year.
Option to buy
In assessing the cost to buy a starter home, Realtor.com looked at the prices for studio, one-bedroom and two-bedroom homes. They assumed that a first-time home buyer would finance with a 30-year fixed-rate mortgage with an 8 percent down payment. Realtor.com also factored homeowners’ association fees, taxes and insurance into the cost of homeownership.
The report concluded that the monthly cost of buying the average starter home in the 50 largest metros was $1,027 higher (60.1 percent) than the average apartment rent. This cost differential is $162 more than that which existed one year earlier. Of the $162 growth in the cost differential, the largest share, $101, was due to the increase in mortgage rates over the past year. The next largest share of the increase, $51, was due to the increased price of the average home while $7 was due to the decline in apartment rents.
The size of the cost differential between buying and renting varied widely from metro to metro. While the average homeownership premium was 60.1 percent, the largest premium was in Austin at 142 percent. This was followed by Seattle (121 percent), Phoenix (99 percent), San Francisco (96 percent) and Los Angeles (90 percent).
In February 2023, there were 5 metros in the top 50 where buying was still less expensive than renting. By February 2024, renting had become less expensive than buying in all 5. These metros were Memphis, Birmingham, Pittsburgh, St. Louis and Baltimore. The homeownership premium in Pittsburgh in February 2024 was only 1.3 percent.
The complete report can be found here.
