The median cost of renting a home around the U.S. has hit record highs for 16 straight months, with a typical apartment in June now going for $1,876, according to Realtor.com. So should that spur renters to take the plunge into home ownership?
Not necessarily. On average, first-time homebuyers could expect their monthly payments to top $2,400, according to the real estate listings firm. Renting is cheaper than buying in three-quarters of the country’s 50 largest metro areas, Realtor.com found.
The culprit? Rising mortgage rates, which “are increasingly tipping the housing affordability scale in favor of renting over first-time buying,” according to the research company.
The average annual interest rate on a 30-year fixed-rate mortgage hit 5.51% this week — more than 2 percentage points higher than at the start of the year. That jump means a $300,000 house costs an additional $325 a month now compared with January.
“Our analysis shows that if not for higher mortgage rates, the rent versus first-time buying gap would have shrunk in the first half of this year, as rents grew more quickly than starter home prices,” Danielle Hale, Realtor.com’s chief economist, said in a statement.
Large coastal cities with more higher-paid jobs are the priciest places to own a home, relative to renting. New York, Los Angeles, San Francisco and San Jose, California, have the biggest price premiums for owning a home — a trend that’s held true for the last four years, according to Realtor.com.
In the San Francisco-Oakland metro area, a first-time homebuyer would pay an average of $2,500 more a month than they would to rent, the analysis found. The monthly premium to own is $2,175 in San Jose, $2,092 in New York and $1,846 in Los Angeles, where as recently as a year ago the costs of owning and renting were roughly equal.
The Austin, Texas, metro area was somewhat friendlier to homeowners as recently as last year, when new owners saved nearly $400 a month compared to renting. But that equation flipped this year, with owning now costing almost twice as much as renting, according to Realtor.com.
Other cities where owning has only recently become pricier than renting include Boston, where it costs an average of $1,700 more per month, and Denver, where the typical mortgage runs $1,025 more than rent.
Realtor.com noted that some cities — mostly smaller ones in the Midwest and South — remain favorable for buying a home. Topping the list is Pittsburgh, where a starter home costs $500 less a month than comparable rent, followed by Birmingham, Alabama ($377), St. Louis ($284) and Cleveland ($200).