There’s Never Been a Worse Time to Buy Instead of Rent

It is now 52% more expensive to buy a home than to rent one because of climbing mortgage rates

By Carol Ryan of The WSJ. Excerpts:

"The cost of buying a home versus renting one is at its most extreme since at least 1996. The average monthly new mortgage payment is 52% higher than the average apartment rent, according to

CBRE

analysis. The last time the measure looked out of whack was before the 2008 housing crash. Even then, the premium peaked at 33% in the second quarter of 2006.

In theory, buying and renting costs should be roughly matched, according to Matt Vance, head of multifamily research at CBRE. Although owners benefit when house prices go up, they also put more cash into their homes than tenants for things such as repairs and refurbishments.

From 1996 to mid-2003, the average cost to buy or rent did indeed work out more or less equal. After the global financial crisis, though, rock-bottom interest rates and plenty of housing supply meant it was 12% cheaper on average to buy a home than to rent one during the 2010s. The current hefty ownership premium reflects the surging cost of debt, as rates on a 30-year mortgage reach 8%, as well as high house prices since pandemic lockdowns raised the value of domestic space."

"A collapse in prices would restore the market to balance, but seems unlikely barring a major recession. Those who bought their properties when rates were low have locked in cheap financing: Around 80% of outstanding U.S. mortgages have an interest rate below 5%. This gives homeowners an incentive to stay put, squeezing the supply of houses for sale."

"With homeownership out of reach for many tenants, landlords would normally be able to push rents higher. But the supply of homes to rent isn’t as tight, with a glut of newly built apartments depressing rent growth. Demand from tenants is also weaker than it was during the pandemic, as most people who were planning to move have already done so over the last two years.

Fannie Mae

thinks vacancy rates in U.S. multifamily buildings will reach 6.25% in 2024, above the 15-year average of 5.8%."

 

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