A recent report comparing the affordability of homeownership to renting comes out in favour of US rental properties. The Realtor.com survey for Q4 2018 finds that in terms of income, renting has the edge over buying.
The Q4 2018 Rent vs Buy Report reveals that rising interest rates and house prices continue to present serious challenges for would-be homeowners. The average monthly mortgage accounts for a higher proportion of income than renting. And in 51 counties it became more affordable to rent than buy in the last three months of 2018.
US rental properties more affordable
According to the Realtor.com research, in Q4 last year the average monthly mortgage stood at US$1,578. This represents 31% of the average household income, just slightly above the recommended maximum of 30%. More significantly, the average mortgage payment increased by 13% in the same period in 2017.
US rental properties, on the other hand, turn out to be much more affordable. In Q4 2018, the average monthly rental was US$1,267, which translates to 25% of a household’s income, some 6% below the proportion required to meet mortgage payments. Average rentals in the US went up by 4% between Q4 2017 and Q4 2018.
Where it makes sense to rent
The survey reveals that in 51 counties it became more affordable to rent in than buy in Q4 last year. They include some of the largest metro areas in the US such as Philadelphia, New York, and Memphis.
US rental properties became a more economically viable option in locations where high house prices put homeownership out of reach for many would-be buyers. Realtor.com finds that in the top ten locations in the US where it makes more sense to buy, median property listings were 280% higher than the national average (US$289,000).
Rentals rates too come in higher than the national average, but the 90% difference is, in this case, more affordable than buying. For example, in New York County, buying a home requires 126% of the average income while renting requires 30%, over four times less. In San Francisco, rental properties account for 41% of income whereas buying a property in the metro area represents 80%.
Where it makes sense to buy
Although the balance may have tipped in favour of US rental properties, in some metro areas it makes more financial sense to buy. In the ten counties listed by Realtor.com, median listing prices for homes on the market come in at around 60% below the national average. On the other hand, the rentals are only 19% cheaper.
Top of the listing is Clayton County in Georgia where buying a property takes up 17% of the average income. Renting, on the other hand, accounts for 32%, almost double. In Madison County in Indiana, monthly mortgage repayments represent just 11% of household income while renting a similar property would take up 20%.