Rents vs. Mortgages: Why in Some Places, Buying Wins

Lew Sichelman

With a year-over-year increase of nearly 20 percent in rents in January, the buy-vs-rent dynamic has flipped in more than half of the country’s 50 largest markets.

Even with mortgage rates trending higher and listing prices continuing to surge, it’s now more affordable to buy a starter home in 26 metro areas than it is to lease an apartment or house of similar size, according to the latest research from Realtor.com.

Moreover, the gap between monthly starter home costs and rents in the 26 markets was greater than it was last summer, Realtor.com’s Monthly Rental Report found. One reason is that any of the top buying markets are relatively affordable secondary metros that are attracting remote workers from expensive big tech cities.

The site pegged the median rent nationally at $1,789 in January, up 19.8 percent from the same month a year ago. But rents during the period for studio units rose 21 percent, to $1,476. The median for both one and two-bedroom apartments was up 19.2 percent, to $1,652 and $2,000, respectively.

“Rental markets are more than making up for lost time,” said Danielle Hale, chief economist at Realtor.com, the official listing site of the National Association of Realtors.

The median for-sale listing price for a starter house in the 50 metro areas studied was $295,360 in January, more than $75,000 lower than the median overall $375,000. However, factoring in costs like mortgage rates and HOA fees, beginner home costs reached $1,867 in those places, which is slightly higher than rents at the national level.

In 26 markets, the monthly cost of buying a starter home was an average of $323 or 20.6 percent lower than renting.

Metro Movement

The equation showed itself most distinctly in Birmingham, Ala., where rents jumped 18.6 percent over the study period. That made it 44.3 percent less expensive on a monthly basis to buy a starter home that it was to rent a place of similar size. On a dollar basis, the monthly nut for buyers was $668 vs $1,201 for renters, a huge $533 a month difference.

Cleveland, Ohio, registered a buy-v-rent disparity of 38.9 percent, with Pittsburgh, Pa., close behind at 38.3 percent and St. Louis, Mo., at 37.3 percent. Two of the top 10 markets that favored buying were Tampa, Fla., at 37.5 percent and Orlando, Fla., at 34.8 percent also were among Sun Belt metros that saw January’s fastest annual rent growth.

On the other hand, technology-oriented markets continued to favor renting over buying. While rents in these spots are making what Realtor.com says is a “strong comeback” from last year’s doldrums, they also suffer from an acute under supply of starter houses for sale.  And with asking prices rising ever higher, the report says, “renting continues to present a more affordable option.”

Topping the list of these places is Austin, Texas, where it is 76 percent less expensive to rent a starter house in January than it was to buy one—$1,346 vs $3,115. It’s 52 percent cheaper to rent than buy in New York City, or $1,415 vs $4,115, and 49 percent in San Francisco, or $1,461 vs $4,436.