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Study Finds Renting More Affordable Than Starter Homes

For homebuyers nationwide hoping to make the transition to first-time buying in 2023, renting is projected to offer more affordable options in the months ahead, according to the Realtor.com Monthly Rental Report for December. On average across the 50 largest U.S. metros in December, a typical renter faced a 41.4% ($792) lower monthly payment than a starter homeowner.

The markets with the largest monthly savings for renters, ranked by the percent difference between monthly mortgage payments and asking rents, include:

  1. Austin, Texas (121.3% or $2,013)
  2. San Francisco, California (97.0% or $2,855)
  3. Seattle, Washington (86.1% or $1,772)
  4. San Jose, California (83.0% or $2,621)
  5. San Diego, California (77.2% or $2,085)
  6. Los Angeles (74.9% or $2,150)
  7. Boston, Massachusetts (73.1% or $2,097)
  8. Portland, Oregon (71.2% or $1,246)
  9. Phoenix (70.1% or $1,116)
  10. Sacramento, California (67.7% or $1,241)

"Despite the fact that renting will likely be cheaper than buying in 2023, rental affordability will remain a key issue throughout the year. We expect rents will keep hitting new highs, driven by factors including still-low vacancy rates, lagging new construction and demand from would-be first-time buyers," said Realtor.com Chief Economist Danielle Hale.

In December, renters faced lower monthly costs than first-time buyers, on average across the 50 largest U.S. metros and in the vast majority —45— of these markets. Additionally, the gap between the cost of renting and buying a similar-sized home widened significantly compared to December 2021. While this was partly attributed to the slowdown in rent growth seen over the past year, December trends indicate that the increase in relative rental affordability was primarily driven by skyrocketing mortgage rates.

Key Findings:

  • In December, the U.S. median rental price, $1,712, was $792 lower than a typical monthly starter home payment. Just 12 months ago, the difference was -$174.
  • The widening gap between rents and first-time buying costs is largely attributed to higher starter homeownership monthly costs ($2,504), which grew 37.4% year-over-year in December – more than 10 times faster than rents (+3.2%) during the same period. Furthermore, despite the slowdown in year-over-year rent growth seen in recent months, typical asking rents ended the year up an average of 11.6% year-over-year.
  • Renting was more affordable than first-time buying in 45 of the 50 largest markets in December, up from 30 markets at the same time last year. In the top 10 metros that favored renting over first-time buying (see table below), monthly starter homeownership costs were an average of 82.2% (+$1,920) higher than rents.
  • Just five markets favored starter homeownership over renting in December, in terms of offering lower monthly costs; these were: Memphis, Tennessee (-32.7%), Pittsburgh (-24.1%), Birmingham, Alabama (-23.5%), St. Louis, Missouri (-6.9%) and Baltimore, Maryland (-3.7%).

"For prospective first-time buyers, the key consideration when figuring out whether to buy or rent is how long you plan to live in your next home. If you're looking for flexibility to move in the shorter term, renting may be your best bet, and still offer opportunities to save if you're able to compromise on factors like proximity to the downtown area. Whereas buying could be the better option if you're planning to stay put for at least five years. Market conditions will play a role, but ultimately the timing comes down to your personal situation, and tools like the Realtor.com Rent vs. Buy Calculator can help you organize and make sense of the many considerations."

To read the full report, including more data, charts and methodology, click here.

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport magazines with more than eight years of writing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is an avid jazz lover and likes to read. She can be reached at [email protected].

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