Renting Becomes More Feasible Than Buying Amid High Mortgage Rates

📝 SUMMARY: The affordability gap between renting and buying a home in the United States has widened, with high mortgage rates and the steep upfront costs of homeownership making renting the more financially viable option in many markets. Susan M. Wachter, a professor at The Wharton School, notes that the cost of homeownership has become particularly daunting in the current economic climate, where home prices and rent have both outpaced wage growth, but renting remains cheaper in most U.S. markets. This assertion is supported by a LendingTree study, which found that in the country's 50 largest metropolitan areas, tenants save an average of $563 per month compared to homeowners with mortgages.

While homeownership has traditionally been seen as a pathway to building wealth, especially once a mortgage is paid off, the initial barriers to entry, such as high down payments—which reached a median of $35,050 in the third quarter of 2023—are significant deterrents. Mortgage rates have also surged, further impacting affordability. Despite these challenges, homeownership offers benefits such as stability, the freedom to customize one's living space, and potential protection during financial struggles, unlike renting, which comes with its own set of advantages like lower upfront costs and the landlord's responsibility for maintenance and property taxes.

The rental market has seen its own challenges, with median asking rents reaching $1,964 in January, reflecting a slow decline from pandemic highs. Yet, the growth in rent prices has been outpacing wages, making it increasingly difficult for renters to save for a down payment on a home. High rent costs have led to a significant portion of renters being cost burdened, spending more than 30% of their monthly income on rent, according to a study by the Joint Center for Housing Studies at Harvard University. This financial pressure, coupled with the high costs and rates associated with buying, underscores the complexity of the housing affordability crisis facing Americans today.

🔍 SOURCE: https://www.cnbc.com/2024/02/21/with-mortgage-rates-staying-high-renting-is-less-expensive-than-buying-.html