Even after a year of record price increases, owning a home is more affordable than renting in nearly 60% of US counties.
For first-time buyers, paying hundreds of thousands of dollars for a house can seem really expensive on paper. But the latest housing data shows that homeownership is more affordable than renting in 58% of U.S. counties.
The major costs of homeownership consume a smaller percentage of the average local income than renting a three-bedroom property in 666 out of the 1,154 U.S. counties analyzed in ATTOM Data’s 2022 Rental Affordability Report.
Homeownership remains largely the more affordable option even after a year in which median home price outpaced average rent and wage growth in 88% of counties.
Homebuying affordability measures the percentage of average monthly wage consumed by a monthly payment on a median priced home. The monthly payment is based on 3% down and includes, mortgage, property tax, homeowner’s insurance and private mortgage insurance.
Rental affordability measures the percentage of average monthly wage consumed by the average fair market rate for a three-bedroom property.
Here’s a closer look at buying versus renting across the U.S.
With some exceptions, the rental and homeownership affordability is split down continental divide – which runs north to south through Montana, Wyoming, Colorado and New Mexico – when it comes to renting and buying.
It is more affordable to rent than own in counties analyzed west of this line, with only a handful of exceptions. This is due in part to home price growth far outpacing wage and rent growth in many western markets in 2021. That’s not to say renting is cheaper in the West than it is in the South or Midwest – it just requires a smaller share of income than the average house payment.
Here’s how the rent versus buy numbers break down for some prominent counties in the West where it's cheaper to rent.
County (major metro) Population (000s) 2021 weekly wages 2022 3-bed rent Jan-Nov 2021 Home Sales price Home payment as % of monthly wage Maricopa County, Ariz. (Phoenix)4,328$1,209$1,973$206,86138.8%Salt Lake City County, Utah1,133$1,211$1,979$483,20847.6%Ada County, Idaho (Boise)456$1,076$1,665$468,50548.8%Data from ATTOM.
To the east of continental divide, homeownership is largely the more affordable option. Exceptions include much of the eastern seaboard, high-populated counties, and the larger Colorado counties.
Here’s how the numbers break down for a few similar-sized eastern U.S. counties where it's cheaper to buy.
County (major metro) Population (000s) 2021 weekly wages 2022 3-bed rent Jan-Nov 2021 Home Sales price Home payment as % of monthly wage Harris County, Texas (Houston)4,646$1,388$1,781$277,50028.9%Hillsborough County, Fla. (Tampa)1,422$1,174$1,867$323,00035%Summit County, Ohio (Akron)541$1,054$1,206$154,33423.3% Data from ATTOM.
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Own versus rent affordability also correlates with the county population. In highly-populated urban counties, renting tends to be more affordable while in suburban and rural counties with fewer than 500,000 people homeownership is the more affordable route.
In the 1,021 counties with under 500,000 people, homeownership is affordable in 625 or 61 percent of them. Population-wise, the largest counties in this category are home to:
Renting is more affordable in 63% of the 91 counties with 500,000 to 999,999 people and 69% of the 42 counties with more than 1 million people. Exceptions include the counties that contain:
Even with county populations over 1 million, it is cheaper to buy than rent in these areas.
2021 featured a horse race between home price growth and single-family rent increases. Up 18% year-over-year, home price growth outpaced single-family rent growth, but not by much.
In September 2021, rent for single-family detached units was up more than 12% – by far the largest spike since 2005.
Rapid rent increases and low mortgages rates gave homeownership the edge in terms of affordability in many markets. But 2022 promises an entirely new set of circumstances.
After a year of record growth, home prices are expected to stabilize in the coming year. Forecasts from major housing authorities range from 16% to -2.8% but average around 6%. This is still stronger than average growth, but far less than the 18% gains in 2021.
The race to watch in 2022 is between mortgage rates and rent increases.
Due to inflation-combating measures by the Federal Reserve, mortgage rates are expected to increase in 2022. In fact, they already have. In the last three weeks the average 30-year mortgage has increased from barely over 3% to nearly 3.5%, according to Freddie Mac’s Primary Mortgage Market Survey.
Simply put, higher mortgage rates eat away at affordability. For example, the monthly payment on a $300,000 home with a 3% interest rate is around $1,402. With a mortgage rate of 3.5%, the payment goes up to $1,476 — and additional $74 dollars per month or $888 per year.
While mortgage rates threaten homeownership affordability, rent prices are poised for another year of growth.
Much like 2021, high prices, rising interest rates, and competition over razor-thin inventory are expected to squeeze first-time homebuyers out of the purchase market. This will drive demand in the rental market, where inventory is also extremely limited.
According to the U.S. Census Bureau, just 5.8% of rental inventory was vacant in the third quarter of 2021. Prior to the pandemic, rental vacancy hadn’t been below 6% since 1984.
Just like the housing market, the imbalance between supply and demand will keep rents growing. And this trend will likely continue for several years since there are no quick fixes for housing and rental inventory. It takes several years of sustained building efforts to increase supply. Meanwhile, a massive wave of millennials aging into their prime household development years promises to sustain demand for the next handful of years.
At the end of the day, homeownership provides something that renting rarely does: a fixed monthly payment that builds equity over time.
In some places, rent may have the upper-hand for short-term affordability. But in the long-run homeownership is a means to creating wealth for oneself, while rent is a means of creating wealth for someone else.
