Buy or Rent? For Monthly Payments, It’s Rent
Ownership offers fixed payments for 30 years and slowly building equity, but those on a fixed budget today haven’t seen such a strong rent advantage since 1996.
NEW YORK – A CBRE analysis finds that the cost of buying a home today versus renting one is at its worst level since at least 1996, with the average monthly new mortgage payment 52% higher than the average apartment rent.
In theory, buying and renting costs should be more or less matched, says CBRE’s Matt Vance.
The comparison isn’t clear-cut since rent generally continues to rise without the resident gaining any long-term benefit. While rising house values benefit owners, however, they also invest more cash into their properties than tenants for things like repairs and refurbishments.
Following the global financial crisis, rock-bottom interest rates and abundant housing stock made it 12% cheaper on average to purchase a home than to rent one during the 2010s. However, the current ownership premium mirrors spiking debt costs as rates on a 30-year mortgage come close to 8%, as well as currently elevated house prices ever since pandemic lockdowns increased the value of domestic space.
A 30-year mortgage today on a $430,000 home with a 10% down payment would cost about $3,200 in monthly repayments – 60% more compared to three years ago. Over that same time period, rents have climbed by 22%.
“There is a lot of shadow demand for homes, with a bunch of first-time buyers waiting on the sidelines for the payment-to-paycheck calculation to work for them,” says Odeta Kushi with First American Financial Corporation. Although the market would be rebalanced if prices implode, that appears unlikely in lieu of a major recession.
Source: Wall Street Journal (10/22/23) Ryan, Carol
© Copyright 2023 INFORMATION INC., Bethesda, MD (301) 215-4688