Renting Ranks Supreme as Rising Home-Buying Costs Squeeze Buyers

For many, the door has closed on the opportunity to purchase a home in today’s market. Constricted by an unyielding market driven by historically low inventory and interest rates hovering near record highs, renting has become the most logistical option for many. Ever-soaring home prices and higher mortgage interest rates have simply priced many out, providing the most impact to first-time and younger buyers. Since the Federal Reserve began raising rates early last year with the intent to curb inflation, there has been no indication that cuts are coming. Consequently, those aspiring to own a home have had to push their plans further into the future.

Cost to Rent vs. Own

Graph Source: Wall Street Journal, CBRE Research, CBRE Econometric Advisors, Freddie Mac, U.S. Census Bureau, Realtor.com®, FHFA
Note: The data assumes a 10% down payment and includes private mortgage insurance. 

While elevated mortgage rates tend to slow down home sales, and home prices tend to follow suit, that isn’t the case today.  In October, the national median existing-home price hit a record high of $392,000. While sales of homes are declining, the prices remain high because of a severe shortage of homes. With not enough houses to go around, even dampened demand can’t bring prices down. Buyers are getting a lot less home for their buck. For mortgage holders, every percentage point increase in rates translates to thousands of dollars more in interest over the life of a 30-year loan. A pre-rate-hike budget of $2,000 could secure a home worth over $400,000. Today, that same budget shrinks to $295,000 or less.

Cost of $400,000 Home’s Mortgage at Various Interest Rates

Graph Source: Bankrate.com
Note: Based on a standard 30-year fixed mortgage, with a 20% down payment

About one-third of all buyers in 2023 were first-time home buyers, versus the historical average of 38%. In 2021, the typical first-time homebuyer was 33, according to 2022 data from the National Association of Realtors. As seen in the chart below, today the median age has grown to 35 years old. 

Source: Wall Street Journal, National Association of Realtors

The average monthly mortgage payment for new home buyers is 52% higher than the average apartment rent across the country, according to CBRE data that analyzed the monthly cost of a new home purchase versus a new lease from 1996 through the third quarter of 2023. In places like Seattle, Austin, and parts of California, that gap widens to 175% or more. 

The extreme rise in home prices and mortgage interest rates continue to price-out potential homebuyers, creating a surge in demand for multifamily living. A new analysis from CBRE revealed that the cost to buy a home versus renting one is now the most expensive on record — surpassing the gap seen during the housing bubble in 2006. New homeowners today are paying $3,322 monthly, versus $2,184 for people who sign new leases. Many buyers find themselves squeezed by escalating prices and dwindling options. 

With single-family affordability strained, multifamily properties emerge as a beacon of opportunity. Roers Companies recognizes this shift and offers a diverse portfolio of well-located, high-quality multifamily investment options to accredited investors. The demand for multifamily is there, and our dedication to providing attractive returns aligns perfectly with the needs of those seeking stability and growth in an uncertain market.

SOURCES: Wall Street Journal, CBS News, CBRE Research, CBRE Econometric Advisors, Freddie Mac, U.S. Census Bureau, Realtor.com®, FHFA

Date Published 12/19/2023

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