The cost of buying a home is now 17 percent higher than a year ago thanks to high interest rates and stubborn home prices, according to John Burns Real Estate Consulting. The rent could push it even higher.
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In a continuing trend that began with the onset of the COVID housing market, the typical home now costs $1,030 more each month to buy than to rent.
That’s up 17 percent from a year ago, according to new research shared by the company John Burns Real Estate Consulting.
This increase is due to mortgage interest rates that have steadily increased over the past year, low supply and a drop in demand that have kept prices high after a historic price jump.
“Even higher mortgage rates and ever-increasing resale prices continue to challenge the availability of housing for sale – resulting in higher-than-usual renters and even more buyers moving on the back burner because they can no longer afford to buy a property. home,” John Burns researcher Danielle Nguyen said in a report.
In 2021, 60 percent of the U.S. was more expensive to rent than own, according to real estate data company Attom. That dynamic quickly changed in 2022, and now 95 percent of counties cost more to buy than to rent each month. Atomic tracks.
This monthly premium varies by market, with the Midwest and Sun Belt having the smallest difference between renting and owning.
The monthly premium to buy over rent has fallen from a peak in October but remains much higher than usual, John Burns said.
While this metric doesn’t account for the potential short- and long-term equity gains through home ownership, it does shed light on the stark divide between the costs of buying a home today.
High rates contribute to the high cost of ownership. Typical monthly payments have jumped about 60 percent as interest rates have risen over the past year and a half, according to CoreLogic. Meanwhile, the median home price jumped 40 percent from the start of 2020 through March, according to the Case-Shiller National Home Price Index.
More than 9 in 10 homeowners with a mortgage have a rate below 6 percent, according to the new research from Redfin. More than 82 percent of owners have a rate of less than 5 percent. A typical 30-year mortgage is 6.7 percent, the online realtor said.
“High mortgage interest rates are a double whammy because they discourage both buyers and sellers,” said Taylor Marr, deputy chief economist at Redfin. “They discourage sellers so much that even the buyers who are out there have a hard time finding a place to buy.”
There are 38 percent fewer homes for sale now than in 2018, Redfin said.
The continued stalemate between buyers and sellers and high ownership costs are expected to increase demand for rental homes and reduce demand for home purchases, researchers John Burns said.
“The resale supply is very low,” Nguyen said. “Historically low resale competition available for purchase as a lock-in effect occurs as homeowners are unwilling to give up very low mortgage rates for today’s rates above 6 percent, suppressing overall supply as they stay put.”
The firm is seeing an increase in interest in neighborhoods that are built for rent, or single-family homes owned by investors and rented out on a month-to-month basis. Earlier this month, New York-based investment firm Pretium Partners announced that he would buy 4,000 new construction homes from one of America’s largest home builders for $1.5 billion.
The sale comes at a time when rent growth has slowed across the board country and even vice versa in some markets, according to multiple reports.
But with potential buyers not owning due to high prices and low supply, this is expected to put upward pressure on rents.
“Challenges in affordability — high mortgage rates and increased prices — can keep renters in place and increase demand,” Nguyen said, “pushing rents back up.”