The affordability gap between homeowners and tenants is shrinking as both home prices and rent prices are rising.
Is Buying or Renting Single-Family Homes More Affordable?
Median-priced single-family homes are less affordable in over 75% of the country, according to ATTOM, a real estate data tracker. This is the highest total of “less affordable” median-priced single-family homes in 13 years. This uptick in home prices is also happening at warp speed since 39% of median-priced, single-family homes were considered to be less affordable at the end of 2020.
Likewise, rents for single-family homes increased +10.9% y/y in October 2021 for the sixth consecutive record high rent increase, according to CoreLogic.
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The answer to the above topic question is that owning is more affordable BUT the gap in affordability is shrinking. According to ATTOM, owning a median-priced home is more affordable than the average rent on a three-bedroom home in 58% of the country.
Affordability Due to Historically Low Mortgage Rates
According to Mortgage Daily News, home ownership has been more affordable than renting for the past several years due to historically low mortgage rates. Now, however, mortgage rates are starting to rise…rates are up more than a half a percentage point compared to a year ago at this time.
“The trend (in mortgage rates) is slowly shifting towards renters, which could be a major force in easing price increases in 2022” said Todd Teta, chief product officer with ATTOM. “Prices can only go up so much more before renting becomes financially easier.”
Renting More Affordable in Big Cities
As we’ve always said, real estate is local and deciphering affordability is contingent upon where a person is deciding to buy or to rent.
It’s cheaper to rent in big cities such as Los Angles, Phoenix, San Diego and Chicago. On the other hand, it’s more affordable to buy in smaller markets such as Detroit, Tampa FL, Philadelphia, San Antonio and Houston and/or suburban/rural markets.
Also, affordability sidesteps the reality that homeownership has historically been a wealth-builder even if/when renting is cheaper in one location or another. Usually, the decision to buy or rent comes down to how long a potential buyer expects to own the home…the longer, the better returns.
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Increasingly Difficult to Save for Down Payment
Last year’s housing market challenged buyers, particularly first-time buyers, to save for a down payment due to skyrocketing prices.
This year’s housing market is challenging buyers with skyrocketing though slower home prices AND fast-paced inflation.
George Ratiu, manager of economic research with Realtor.com, said just that. “For buyers still reeling from last year’s overheated market and sky-high prices, fast-paced inflation is squeezing their budgets, and offsetting low mortgage rates…” that will almost surely be hiked three- or four-times by the Federal Reserve by the end of 2022.
Thanks to CNBC.
