Buying vs. Renting a House in America: An Updated Analysis

As home prices and mortgage rates continue to rise, the U.S. is currently experiencing the largest numerical gap in the monthly cost between owning a home and renting in over half a century. This situation, however, is not unprecedented, with similar scenarios having occurred since the early 1980s.

Mortgage Rates Reach New Heights

As of August 2023, mortgage rates have soared to their highest level in 23 years, with the national average 30-year fixed mortgage rate reaching 7.62%.

The Cost of Renting vs. Buying

Consequently, the median rent in America is now approximately $2,095 per month, which is about 30% cheaper than the median cost to buy a house, standing at $421,714.

This gap represents the largest difference between renting and buying in U.S. history.While the difference was less than $200 in 2022, in 2023 the gap has surpassed $800.

Impact on Home Buyers

Many potential buyers, particularly those looking to make their first home purchase, have been priced out of the market due to concerns that they cannot afford homeownership. As a result, mortgage applications for home purchases have hit their lowest point since 1995.

Rent Costs on the Rise

Rent costs have also seen an increase, but not at the same pace as home prices. The market has adjusted following a steep rent spike witnessed during the pandemic, with the average American renter now paying $1,326 a month.

Will Mortgage Rates Drop Soon?

Increases in interest rates significantly impact long-term home loans such as 30-year fixed-rate mortgages. Starting in 2022, the Federal Reserve began to hike rates from their near-zero level to the current range of 5.25-5.5%.Recently, the Federal Reserve unveiled new projections indicating that the interest rate could potentially reach 5.6% by the end of 2023, implying at least one more rate hike this year. As a result, numerous experts anticipate that mortgage rates will likely remain above 6% for the rest of this year.