When Home Prices Make Renting the Smarter Choice
Exploring the housing market can quickly become a disheartening experience when the prices of homes seem just beyond reach. This raises a crucial question for many prospective homeowners: At what point does it become wiser to rent rather than commit to buying?
Currently, the average sale price of a home in the United States hovers around $520,000, as reported by the U.S. Census. This figure skyrockets in cities like Denver, where the average sale price nears $575,000. This has led to a growing consensus among housing experts that in several key urban areas across the country, renting may indeed be the more financially sensible option.
Zack Neumann, co-founder of the Community Economic Defense Project, has firsthand insights into the turmoil faced by those who find homeownership beyond their financial reach. His organization primarily aids homeowners confronting eviction, with the vast majority of these cases stemming from inability to pay. “Almost every eviction we see is a nonpayment eviction because people are spending 50, 60, 70% of their post-tax income on housing,” Neumann observes.
Neumann also points out that the financial demands of homeownership extend beyond mortgage payments. Additional expenses, such as homeowner association (HOA) fees, can exacerbate affordability issues, at times even leading to foreclosure for those unable to keep up with these extra costs.
A study by real estate giant Redfin comparing median mortgage payments to rental prices in America’s 50 largest cities found that mortgages were cheaper than rents in only a handful cities: Cleveland, Detroit, Houston, and Philadelphia. Conversely, the study highlighted that in several cities, including San Jose, San Francisco, Oakland, Anaheim, and Seattle, renting was invariably the cheaper option, with 0% of homes being more affordable to buy than rent.
The pandemic era has notably shifted the landscape of housing affordability. Cities once deemed reasonably priced, such as Sacramento, Las Vegas, Phoenix, and Austin, experienced a surge in population as remote workers sought out more appealing locales. This influx has contributed to a diminished housing supply, further inflating prices and complicating the pursuit of homeownership for many.
The crux of the issue, as Neumann suggests, hinges on supply and demand. With the current scarcity of available homes and the notable increase in interest rates, the situation has tightened. Many homeowners, locked into low-rate mortgages obtained during the pandemic, are reluctant to sell and face higher rates on a new property.
Though a decrease in mortgage rates could potentially make buying more appealing compared to renting, significant changes in the housing market’s dynamics are required for a meaningful shift towards homeowner affordability. Until such a transformation occurs, for many, renting remains the financially prudent choice.
Neumann articulates a vision for the future of housing: “I think we want to live in a world where most people can afford to buy a home and they can stay in that home, and they can pass that home on to future generations or sell it and use the money from the sale of that home in 20 or 30 years to fund their retirement. But that is not the world we’re living in.” This statement encapsulates the current challenges many face in the housing market, underscoring the ongoing debate between the viability of renting versus buying in today’s economic climate.
