Renting Is Back on Top for Consumers

Just one year ago, home ownership was more affordable than renting in most places, according to a January 2022 report from ATTOM. Now, the Irvine Calif., company says just the opposite is true.

My, how the tide has turned.

In January 2022, the real estate data firm reported that owning a median-priced house was cheaper than renting a three-bedroom house in 666—58 percent—of the1,154 counties it studied. But in its latest report, it finds, renting a comparably-sized median-priced house is more affordable in 210 – 95 percent – of the 222 counties analyzed this time around.

The two studies aren’t totally comparable. ATTOM looked at far more counties last year than it did for the latest report. But you get the picture. Rising houses prices and higher mortgage rates, coupled with low inventory of properties for sale, has turned the dynamic on its head. Add slowly falling rental rates in some places, and the circle is all but complete.

To be sure, both renting and owning a three-bedroom house are significant financial burdens for many households, consuming more than one-third of average wages in most major housing markets. But, as the new ATTOM study points out, average rents still require a significantly smaller portion of wages than major home-ownership expenses on three-bedroom properties.

Indeed, according to a report from Clever Real Estate, a matching service that links consumers with realty agents, the current level of inflation has impacted the home-buying plans of 92 percent of Millennials, nearly half of whom say high interest rates are a significant barrier to purchasing a house.

“What a difference a year makes,” said Rick Sharga, ATTOM’s executive vice president of market intelligence, in a statement. “With mortgage rates doubling, monthly payments for new homeowners rose by 45-50 percent compared to a year ago, even though home price appreciation has slowed down dramatically.”

The shift has occurred even though rental rates rose—in some cases, significantly—last year. But that tide is receding, too.

Rents Normalizing

For much of 2022, apartment rents were on the upswing. So much so that nationally they grew by 6.4 percent on average for the entire year, according to Yardi Matrix. But in November and, then again in December, they fell. Not significantly, but down nonetheless.

Of the 134 markets that Yardi Matrix covers, rents in more than half (77) slipped slightly month-over-month in December, while 51 showed rent growth.

Now, the winds have shifted even more and “will continue” to do so throughout the year, said senior research analyst Andrew Semmes in a two-page analysis covering the report.

“We do not expect to see asking rent growth in 2023 anywhere near as strong as it had been in both 2021 and 2022,” Semmes opined. “We do not anticipate significant rent declines, either, but rather a return to growth that is much more in line with what was ‘normal’ before the pandemic, although likely on the lower side of normal.”

While the overall outlook for rents hasn’t changed much, Yardi Matrix has trimmed its forecast for average asking rents for 2023 going forward, from 3.1 percent to 2.6 percent. The lower projection is mostly driven by the “outsize” impact on the average by some large markets, including Los Angeles County, Miami, the San Francisco Bay Area, Tampa and Manhattan.

“Each of these markets saw significant month-over-month fluctuations over the past two months, volatility that occurred slightly earlier than expected,” said Semmes.

“Lots of volatility” is expected in Class A buildings, which “almost always” feel the greatest impact of economic uncertainty, the Yardi Matrix report warned. But Yardi doesn’t “expect to see the bottom fall out.” Markets that particularly bear watching are those where large amounts of supply are coming online, such as Austin, Salt Lake City, Miami, Charlotte and Nashville.