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The Monthly Cost of Buying vs. Renting a House in America

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The Monthly Cost of Buying vs. Renting a House in America

With home prices and mortgage rates both rising, the U.S. is now witnessing the biggest numerical gap in the monthly cost between owning a home and renting in over 50 years.

Americans, however, have seen similar scenarios occur since the early 1980s.

Today’s chart uses data from Reventure Consulting to highlight the cost of buying vs. renting a single-family residence in the U.S. since 1970, adjusted for inflation.

Mortgage Rates Jump to New High

In August 2023, mortgage rates rose to the highest level in 23 years, with the national average 30-year fixed mortgage hitting 7.48%.

As a result, the median rent in America is approximately $1,850 per month, about 30% cheaper than the median cost to buy, standing at $2,700 per month. 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 surpassed $800.

Many buyers, particularly those seeking their initial home purchase, have now been priced out of the market with concerns that they cannot afford home ownership. As a result, mortgage applications for home purchases have hit their lowest point in 20 years:

Collapse in mortgage demand in the U.S.

Rent costs have also seen an uptick, but not at the same pace, as the market adjusted following a steep rent spike witnessed during the pandemic.

Will Mortgage Rates Drop in 2023?

Increases in interest rates affect long-term home loans, such as 30-year fixed-rate mortgages. And 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 in 2023.

As a result, numerous experts are anticipating that mortgage rates will likely remain above 6% for the rest of this year.

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The Most Affordable U.S. Cities for Rent on an Average Salary

Visualizing the most affordable U.S. cities for renters by the percentage of affordable rentals available on an average salary.

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A cropped chart listing the most affordable U.S. cities for renters.

The Most Affordable U.S. Cities for Rent on an Average Salary

In 2023, 34% of the 131 million households in the U.S. lived in rented homes.

But which U.S. cities are the most affordable to rent in? The question isn’t just about cost, but about the average salary in each city, and some cities in expensive-seeming states turn out to be relatively affordable.

To answer the question, CashNetUSA found rental price data (as of August 2023) from Zillow.com and compared it to city salary data to calculate the percentage of properties available to rent for 30% or less of the local average income.

Ranked: Most Affordable American Cities for Renters

Ranked first, nearly 97% of the available rentals in Hartford can be rented for an affordable rate, based on average income.

This might be a surprising statistic. Connecticut was the richest U.S. state (by per capita income) for nearly three decades till 2019, and has one of the highest costs of living in the U.S.

However, it’s important to note that this data deals with averages instead of medians. For example, according to data from the Bureau of Labor Statistics, the average hourly wage for a Hartford resident—across all occupations—is slightly more than $33/hour, or close to $70,000 a year. Its median wage is almost $8/hour lower, which comes in at $53,000 a year.

Richer residents, with higher incomes might be skewing the apparent affordability of available rentals.

Note: Data current as of August, 2023.

Toledo and Akron, ranked second and third, have similar rates of affordability, with 95% of their available rentals falling within 30% of the city’s average wage. In fact Ohio has the most number of cities in the top 20, with Waterbury ranked 17th.

Detroit and Rockford round out the top five most affordable cities in the U.S. for renters. Both cities have affordable housing markets, after the Great Recession caused the local economies to tank, in turn causing an increase in crime and decline in population. Post-pandemic, however, both cities are on the rebound with an influx of industries, jobs, and people.

Where Does This Data Come From?

Source: CashNetUSA

Methodology: CashNetUSA sourced the average base salary of U.S. cities focusing on the 100 most populated cities in the country, plus the five most populated cities from each state. Using Zillow.com, they then counted how many rental properties per city were listed at a monthly price equivalent to 30% or less of a city’s monthly gross salary. The number of rental properties available per city was converted into a percentage score per city. Data for this research is accurate as of August 2023.

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