Homeownership More Affordable Than Renting—For Now

Buying a home starts to lose its advantage as prices and mortgage rates creep up

Happy couple unpacking boxes in living room at new home
•••

Maskot / Getty Images

Is buying or renting the best way to afford a home? The answer isn’t simple, and it depends mainly on where in the country you live, according to a new analysis of home affordability. 

The ownership costs of a newly purchased three-bedroom home were more affordable than renting an equivalent property in 58% of U.S. counties studied by ATTOM Data, a real estate data firm. Despite rising home prices, monthly homeownership costs—including the mortgage, property taxes, and insurance—consumed a smaller share of the average local wage than rent did in most of the country, ATTOM said in a report released Thursday. However, the reverse was true in most major metropolitan areas like Los Angeles and Chicago, the report found.

The results were mixed because of the many moving parts that go into the affordability equation. Most of them—such as home prices, rent, wages, and even homeowners insurance bills—have been rising lately. The low mortgage rates that have kept home loan borrowing costs down have also begun to creep up, though they’re still low enough to help buyers. After taking all this into account, homeownership has begun to lose its affordability advantage over renting, with median home prices rising faster than rents in 88% of counties—a trend with implications for the future of the housing market.

“The trend is slowly shifting toward renters, which could be a major force in easing price increases in 2022,” said Todd Teta, chief product officer with ATTOM, in a release. “Prices can only go up by so much more before renting becomes financially easier. For now, though, rising wages and interest rates around 3 percent are enough to offset recent price runups and keep ownership on the plus side of the affordability ledger compared to renting.”

Indeed, the bills on a typical newly bought home have been eating up bigger and bigger shares of average paychecks. Major ownership costs took up 25.2% of the average national wage of $65,546 in the fourth quarter of 2021, ATTOM said in a separate report last week, up from 24.4% in the third quarter. That’s short of the 28% that lenders use as a benchmark for affordability, ATTOM said. But it’s headed in the wrong direction. 

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.