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Better Now to Rent or Buy? It’s Complicated

September 8th, 2022 by tisner

Mortgage bankers say a mortgage payment in the second quarter was 1.5 times higher than asking rent – but rents keep rising and buying locks in financial certainty.

NEW YORK – The Mortgage Bankers Association (MBA) reports that the median monthly mortgage payment was almost 1.5 times as much as the median monthly asking rent in the second quarter – the largest gap since 2009.

Both home prices and rents rose significantly over the last year or so, but the rising cost of buying is now tied to the additional interest buyers must pay when they lock in mortgages at today’s higher rates.

In the fourth quarter of 2020, there was little difference in the cost to buy or rent. Median mortgage payments and asking rents were basically equal at just under $1,200. Since then, rents have risen 10% to $1,314 in June, according to Census Bureau data, while mortgage payments have risen 58% to $1,893, according to the MBA. The ratio between the two stood at 1.44.

The decline in affordability has some potential buyers reconsidering their decisions.

“Clients that I’ve worked with might have been able to afford a more expensive home at the lower interest rates,” says Heather Kruayai, a Redfin real-estate agent in Jacksonville. “Because interest rates have gone up, they’re priced out of the home they wanted.”

Some potential buyers have gone back to renting, but affordability could increase, with MBA reporting that the median mortgage payment fell to $1,844 in July. Further, the median mortgage cost for buyers in the 25th percentile, a proxy for first-time buyers who typically purchase cheaper homes, is still below the median asking rent despite rising along with the rest of the market.

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Source: Wall Street Journal (09/02/22) Eisen, Ben; Friedman, Nicole

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