By Paulina Cachero
Surging mortgage rates in the US are changing the calculus on whether it’s better to buy or rent.
These days, it is more affordable to rent than buy a starter home in 38 of the 50 largest US metro areas, according to a report from Realtor.com. Rent is up too, with the the median monthly payment jumping 14% year-over-year in June to a record $1,876. But higher mortgage rates have pushed up the costs of buying a home even more.
In 2021, the average monthly mortgage payment for a starter home was $1,815, just $171 higher than rents nationwide. Now, that gap has jumped to $561, with the costs for a starter home 30% higher on average than rents in the US, the report said.
That comes as mortgage rates have skyrocketed this year, jumping to nearly 6% after starting the year at 3.11%. If not for the higher borrowing costs, the gap between rent vs. average monthly mortgage payments would have declined in the first half of 2022, as home prices started to cool, according to Danielle Hale, chief economist at Realtor.com.
Large tech hubs accounted for eight of the top 10 metro areas where it was more affordable to rent in June. Homes have been in short supply across the US during the pandemic housing market and are at particular premium in these areas, which have good jobs and companies that have embraced working from home.
In Austin, Texas, a hot destination for remote workers in the pandemic and home to a burgeoning tech scene, the cost to purchase a home was 98%, or $1,822, more than the median rental price.
“As housing affordability remains a challenge for many Americans, it’s key to stay on top of how higher costs impact your budget, whether renting or first-time buying,” Hale said.
More stories like this are available on bloomberg.com.