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The State of Housing Finance

Historically, buying has always been a better investment than renting, but that may no longer be the case—one of several highlights from the Urban Institute’s Housing Finance Policy Center.

Renting may be more economical than buying, and the rates of growth for the highest- and lowest-priced homes are converging—a few key takeaways from the Urban Institute’s Housing Finance Policy Center, authored by several research fellows.

Everyone should keep a keen eye on housing affordability in 2021. After several years of low-tier house prices growing at a larger rate than their high-tier counterparts, the two are once again near matching. This is mainly due to a slowdown in the price appreciation among lower-tier homes, a very good thing for first-time homebuyers.

Rent is where things get interesting, however. According to Consumer Price Index data, rental growth fell from 3.8% in January 2020 to 2.4% in November of the same year—this is for primary residences only. Coupled with historically low mortgage rates, which are around 2.7% at the time of this writing, the debate between renting or buying is getting heated.

When looking at the average price of purchasing lower-tier homes versus renting, the end of 2020 saw a small financial benefit to renting. A $210,000 home purchased with a Federal Housing Administration (FHA) loan, for example, with a 3.5% down payment would cost around $1,765 a month—$10 less than renting. But at the beginning of the year, renting would theoretically be $74 less per month.

The low mortgage rates, even compared to lower rents, were more beneficial. But will that continue to be the case?

According to housing analysts, mortgage rates will increase in 2021, but home price growth should slow down.

The entire report, available at urban.org, “Housing Finance at a Glance, a Monthly Chartbook," breaks down housing finance trends in areas including:

  • Mortgage Origination Projections & Originator Profitability 
  • Total Originations and Refinance Shares 
  • Housing Supply 
  • Housing Starts and Home Sales 
  • Housing Affordability  
  • National Housing Affordability Over Time 
  • Affordability Adjusted for MSA 
  • Home Price Indices 
  • National Year Over Year HPI Growth 
  • First-Time Homebuyer Share 
  • Comparison of First time and Repeat Homebuyers, GSE and FHA Originations 
  • Delinquencies and Loss Mitigation Activity  
  • Negative Equity Share 
  • Loans in Serious Delinquency/Foreclosure 
  • Forbearance Rates by Channel  

About Author: Veronica Bradley

Veronica Bradley has covered the consumer packaged goods industry, the tech industry, the healthcare industry, and a few other industries that impact people’s daily lives. When she isn’t researching and writing, she moonlights as an amateur accountant and bookkeeper for a small family brewpub, because unlike most writers, she isn’t afraid of numbers.
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