Good News For Landlords: Home Prices Rise Three Times Faster Than Rents

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Rising home prices are good news for landlords who like to see a good pool of long-time potential renters in the market.

This news comes as the monthly cost of buying a home rose 14 percent over the last year – more than three times faster than the 4 percent increase in monthly rental costs, according to a new Realtor.com study.

“Even setting aside big upfront expenses like a down payment, rising month-by-month costs are likely keeping many people from purchasing,” Danielle Hale, chief economist at realtor.com®  said in the release.

“Today only 41 percent of people live in a county where the median income family can afford to buy a home at the median list price, and affordability declined significantly over the past year. Since home ownership has historically been an important source of household wealth creation, it could be problematic if this trend continues for too long. Still, even in places where renting is currently more affordable, rising home prices provide wealth building opportunity for home buyers,” Hale said.

home prices

Median monthly cost to rent a home vs buy a home

In July 2018, the median monthly cost to rent a home was $1,267 compared to the average cost to buy a home of $1,647.

home prices

Over the last year, 289 counties have transitioned from being more affordable to buy, to being more affordable to rent. The transition included 20 larger counties with more than 100,000 of which eight counties were in the South and seven counties in the Midwest.

In just 35 percent of counties throughout the country, the monthly costs of buying a home are now lower than the monthly costs to rent a home – this compared to 44 percent just last year. This disparity is even greater among large counties.

Buying is still cheaper than renting for only seven percent of counties in the U.S. with a population larger than 100,000 people.

Northern California Has Widest – and Fastest Growing – Gap Between Ability to Rent and Buy In Home Prices

Northern California and New York each hold three of the top 20 counties with the largest increase in the rent-versus-buy gap over the past year (comparing the share of income necessary to do each). The gap for counties in California was the largest in large part due to the substantial run-up in home prices experienced there.  In San Mateo, Santa Clara, and San Francisco counties, the costs to purchase a home now take up an additional 8 percent of income over renting when compared to last year. In San Mateo, for instance, it costs $8,405 to buy compared to $3,471 to rent.

Methodology

Purchase and rent costs reflect current costs and do not take into account holding period, price and rent appreciation, and inflation. Purchase costs do include taxes and insurance, and are calculated based on realtor.com county-level residential listing price data and mortgage rate data for July 2018. Rental prices are from the U.S. Department of Housing and Urban Development (HUD) data for 2018 50th-percentile rent estimates. Household income data and homeownership data is from Census Housing Vacancies and Homeownership data and 2018 Nielsen estimates based on Census data. Only counties with populations of 100,000 or greater are included in the top lists in this analysis.