Renting Beats Buying with 38% Cost Difference in 2023 Housing Market
Deciding between buying or renting a house has long been challenging for Americans. Despite the allure of homeownership as an investment, a recent report from CBRE indicates that renting is significantly more affordable. The real estate firm discovered that average mortgage payments surpassed average rent payments by 38% across the country in 2023. This trend is projected to persist, with renting anticipated to remain the more economical option in the foreseeable future.
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Renting vs. Buying: The Cost Divide in America
CBRE's analysis reveals that in 2023, the average monthly payment for a new apartment lease stood at $2,165, while the average monthly mortgage payment for a new home was $2,997. The disparity between renting and buying was particularly pronounced in high-demand housing markets like Los Angeles, San Francisco, Denver, Seattle, Nashville, and Tennessee.
Factors such as higher mortgage rates and a nationwide housing shortage contribute to continually elevated home prices. "It is proving to make more sense [for individuals] to rent for a little longer," an author of the CBRE report, Matt Vance, told ABC News.
The report also highlights a shortage of approximately 3.8 million housing units in the country, with nearly 90% of the deficit in single-family homes and smaller multi-unit dwellings.
Outlook for Prospective Homeowners
CBRE's projections suggest that the significant gap between buying and renting will persist for at least the next five years. Even by 2030, mortgage payments are expected to exceed average rent payments by 11%.
Despite some improvement in supply due to new construction activity and fewer household formations, the housing shortfall is forecasted to persist through 2029, even in the most optimistic scenarios. However, in markets like Chicago, Dallas, Raleigh, and North Carolina, the gap between renting and buying is anticipated to return to pre-pandemic levels within the next five years.
To Buy or To Rent?
While rent and mortgage payments are important considerations, other financial factors should be assessed before making a decision.
A Fox Business report suggests individuals should achieve several financial milestones before purchasing a home, including becoming debt-free, establishing an emergency fund, accumulating enough savings for a down payment, and ensuring sufficient income to cover mortgage payments.
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Moreover, renting offers lifestyle benefits such as home maintenance responsibilities being handled by the landlord, unlike homeowners who must manage these tasks independently. Some rental properties also provide access to community amenities like gyms, pools, cafes, or dog parks, enhancing the overall living experience for tenants.
However, renting lacks the stability inherent in homeownership. Rental rates can fluctuate unpredictably, and during challenging economic periods, lease renewals may come with substantial rent hikes. This instability can compel renters to seek alternative housing, a task made more challenging by the limited availability of rental properties.
Ultimately, the decision between renting and buying hinges on individual preferences and priorities. For those seeking stability and investment opportunities, homeownership may be the preferred choice. Conversely, individuals who value flexibility and cost savings may find renting to be a more suitable option, especially if they anticipate frequent relocations.