As rental prices have dropped, buying costs have increased across the US housing market, so what does this mean for buyers, investors and renters?
Higher mortgage interest rates, still-high home prices and dropping rents have made it more affordable to rent than buy in every single location within the top 50 metro areas of the US housing market, according to data from Reatlor.com.
In February this year, the average monthly mortgage payment on a starter home in the biggest metro areas came to $1,027, which is 60.1% more than the average monthly rent in those markets.
At the same time, the cost to buy was $865 higher than renting in February 2023. This equates to a $162 higher monthly savings from renting in the US housing market compared to the year prior.
What’s impacting rental decisions?
In the US housing market, the savings currently being found in the rental market are predominantly driven by falling rent prices and higher buying costs, particularly interest rates.
The 30-year fixed mortgage rate stayed elevated at 6.78% in February this year, compared to 6.26% in the US housing market 12 months ago.
Danielle Hale, Chief Economist at Realtor.com, says: “With rents continuing to fall and the cost of buying a home remaining high, exacerbated by the rise in mortgage rates in the later half of 2023, renting a home is now a more cost-effective option in all major U.S. markets.”
“Deciding whether to rent or buy often goes beyond a financial advantage though, and likely depends on a consumer’s circumstances. Renters often prize flexibility while the biggest reasons homebuyers cite are that they want a place of their own and to be closer to family and friends.
“The financial scales have tipped monthly costs in favor of renting over buying, but it does not bring the benefit of housing wealth gains over time that owning does and movers should consider their long-term housing plans and personal situation as they make this decision.”
What’s happening across the US housing market?
Renting beats buying in all major areas in the US housing market and especially so in the south and west. The list of the top 10 metro areas with the most significant renting versus buying savings included four locations in California, two in Washington, two in Texas and one in both Arizona and Tennessee.
At the same time in 2023, 45 metros favoured renting. However, over the last 12 months, Memphis, Birmingham, Pittsburgh, St. Louis and Baltimore metro areas flipped from favouring buying to renting.
Interestingly, four out of these five markets were some of the top metro areas seeing a high share of investor activity. This could have accelerated the growth of house prices there and increased the overall costs of buying a property, tilting the markets further toward favouring renting.
What about the UK property sector?
There is a similar trend being seen in the UK. Despite a recent levelling off in UK house prices and mortgage rates, it seems that the rental market is set to remain in high demand as renting is cheaper per month, particularly in certain locations.
In recent years, the UK rental market has experienced unprecedented levels of demand amidst a rental boom. Many in the industry point to factors like prospective homebuyers putting off their first purchase, a shortage of rental properties and lifestyle changes that make the flexibility of renting more attractive.
For those looking for a property investment in the UK, this is crucial because it means rent prices are set to remain strong, buoying rental yields. And if there is strong demand, rental properties are unlikely to sit vacant for long between tenancies.
If you’re an overseas property investor trying to decide whether now is a good time to invest in UK property, speak to one of our property investment consultants, who can give you more details about our current projects.
