In January 2022, the U.S. median rental price rose by double digits for the eighth straight month. This marked an overall increase of 19.8% since January 2021. According to realtor.com®’s monthly rental report for January 2022. This steep rise means that the monthly cost of rent now exceeds the monthly cost of starter homeownership in most U.S. cities.
The rising costs of renting units of all sizes—studios, up 21% ($256); 1-bedrooms, up 19.2% ($266); and 2-bedrooms, up 19.2% ($323)—were all higher than the rise in the monthly cost of buying a two-bedroom home (up 11% year-over-year). In 26 of the 50 largest U.S. metro areas, the monthly cost of a starter home is an average of 20.6% ($323) lower than that of monthly rent.
Regional breakdown:
The report suggests that this disparity is the product of overall rising costs; starter-home list prices and mortgage rates remain competitive but simply aren’t keeping pace with the surge in rent prices.
The top buying markets are Midwestern and Sun Belt metro areas. These cities are attracting first-time buyers, including millennials, and remote workers from big tech cities. The top three buying markets are:
Birmingham, Ala: $668 monthly buying cost versus $1,201 median monthly rent. The difference is $533, or 44.3%
Cleveland: $809 monthly buying cost versus $1,325 median monthly rent. The difference is $516, or 38.9%
Pittsburgh: $945 monthly buying cost versus $1,530 median monthly rent. The difference is $585, or 38.3%
However, this trend is not universal. In 24 of the 50 largest U.S. metropolitan areas, renting remains a more affordable option than buying; the monthly cost of buying a starter home was 24.8% ($536) higher than the cost of renting. Of the top 10 metro areas where renting remains more affordable than buying a home, eight are home to big tech. In these metro areas, the gap is even wider; monthly starter home-buying costs were 41.6% ($978) higher than rent.
These metro areas include:
Austin, Texas: $3,115 monthly buying cost versus $1,769 median monthly rent. The difference is $1,346 or 76.1%.
New York City: $4,115 monthly buying cost versus $2,700 median monthly rent. The difference is $1,415 or 52.4%.
San Francisco: $4,436 monthly buying cost versus $2,975 median monthly rent. The difference is $1,461 or 49.1%.
The takeaway:
“While both rental and home-buying costs are rising, a number of factors could tip the affordability scale in favor of first-time buying for many Americans this year,” said realtor.com® chief economist Danielle Hale. “Rents are forecasted to outpace listing price growth in 2022 and are already accelerating across all unit sizes. Additionally, survey data shows the majority of landlords plan to raise rental asking prices this year.”
Hale added: “The buy-versus-rent decision ultimately depends on personal circumstances like where you live, your financial situation and how long you want to live in your next home … deciding when to transition from renting to first-time buying is largely dependent on stage of life. For young Americans like Gen Z who may have moved home to save money during COVID, renting in a big tech city offers flexibility and relative affordability even as rents recover in these areas. But for the 45 million millennials at the first-time buying stage of life, priorities may have shifted towards settling down and building wealth.”
For more information, visit www.realtor.com.
