It’s now cheaper to rent than to buy a home in America’s top cities

America’s housing affordability crisis has reached a tipping point as it’s now cheaper to rent than to buy in the majority of the country’s largest cities.

As of February, buying a starter home in the 50 largest U.S. metros was 60.1% more expensive than renting a similar-sized property, according to real estate state marketplace Realtor.com.

For renters, that’s a whopping $1,027 in monthly savings. Those savings spike to $1,950 in the ten most expensive housing markets.

Renters’ advantage has grown over the past year, with monthly savings across the top 50 metros increasing by $162 compared to February 2023.

Realtor.com calculated monthly housing costs based on an 8% down payment on a starter home and the prevailing 30-year fixed mortgage rate in February, as well as HOA fees, taxes, and insurance.

“With rents continuing to fall and the cost of buying a home remaining high, renting a home is now a more cost-effective option in all major U.S. markets,” said Danielle Hale, chief economist at Realtor.com.

On an annual basis, average rent prices have declined for seven consecutive months, whereas mortgage and housing costs for buyers remain elevated.

Realtor.com cautioned against reading too much into the rental figures.

Although average rents have moderated somewhat, they’re only 2.8% lower than their mid-2022 peaks. It’s just that the cost of buying a home has become much more expensive.

And while home prices, too, are down from their post-pandemic peaks, values remain too rich for many Americans to absorb. Combine that with still-elevated mortgage rates, and it’s enough to keep first-time buyers on the sidelines.

Experts warn this situation is unlikely to change anytime soon.

Housing affordability remains a persistent problem

Thanks to one of the worst housing affordabolity crisies on record, 2023 was the worst year for home sales in nearly three decades—and 2024 is looking up either.

Home prices across the ten largest metro areas shot up 7.4% annually in January, according to CoreLogic data. The expanded 20-city index rose by 6.6% year-over-year.

In both cases, it was the seventh consecutive annual increase.

Among the top 20 metros, 14 reported faster year-over-year price growth than the month before—meaning home prices appear to be re-accelerating.

A big part of the problem is a lack of both for-sale and overall housing inventory, according to Robert Dietz, chief economist for the National Association of Realtors.

“We simply don’t have enough developed land to build on, particularly in the places where it’s needed the most, which tends to be highly dense, more regulated markets in the largest metros where there’s a lot of population growth,” he explained.

Although the Fed is expected to cut interest rates this year, which should indirectly lower mortgage rates, it won’t be enough to provide the market with sufficient relief.

The Fed’s actions “should push mortgage rates down into the low 6% range and perhaps in 2025 moving into the high 5s,” Dietz said.

However, “Because home prices have gone up 40%, no matter how much you adjust mortgage rates—and we’re not expecting them to come down to 2% any time soon, if ever again—you’d really have to get them to 2% to get that affordability back,” according to CoreLogic chief economist Selma Hepp.

In the meantime, sidelined buyers might find reprieve in some rental markets, although that depends on where they live.

Supply and demand also affect the rental market

Much like home purchases, the forces of supply and demand also dictate the rental market.

The good news is that many parts of the country have seen a surge in new apartment construction, especially in the Sun Belt states, which are known for having pricier rental markets.

The apartment boom has reached places like Arizona, which saw average rents decline in March, according to housing data site Zumper.

But the problem is the opposite forces could be in play in other regions.

Susan M. Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania, warned that more affordable regions could see an uptick in rental costs due to a lack of supply.

“The supply coming online absolutely does vary by market,” she told CNBC, referring to the dwindling supplies in regions across the Midwest and Northeast, which should push prices higher.

Echoing Realtor.com’s warnings on rent prices, some experts are cautioning consumers not to associate a cooling market with a declining one.

“Rental markets are cooling, but in a lot of places, it doesn’t mean they’re falling. It means they’re growing at a slower pace,” according to Whitney Airgood-Obrycki, a senior research associate at the Joint Center for Housing Studies at Harvard University.