The cost difference between owning a home and renting an apartment has reached its widest gap in more than 15 years.
Owning a home costs $1,176 more per month than renting from a professionally managed apartment complex, according to analysis by the National Multifamily Housing Council.
NMHC examined the growth rate of apartment rents relative to the cost of all consumer goods as well as the monthly cost of homeownership. The amount by which rent growth exceeds overall inflation has slowed since the beginning of the pandemic while the premium to buy a new home relative to what it costs to rent an apartment has risen to its highest level since the peak of the housing bubble in the mid-2000s.
National apartment rent growth accelerated over the past three years, averaging 6.3% annually among professionally managed apartments tracked by RealPage.
But after adjusting for inflation, effective asking rents among professionally managed apartments tracked by RealPage grew at an average annual rate of just 1.2% between 4Q 2019 and 4Q 2022.
Rapidly rising house prices coupled with rising interest rates has caused the monthly cost of homeownership to increase far more than both the cost of rent and other consumer goods. From December 2019 to June 2022, the median sales price of existing homes in the U.S. grew an average of 17.4% per year. This compares with an average annual rate of 5.9% over the preceding five years.
The monthly cost of homeownership for a newly purchased home, assuming a 10-percent down payment and 30-year fixed rate mortgage, has increased 71% over the past three years, NMHC reported. This growth in the cost of homeownership far exceeded the 5.0% average annual inflation during this period.
As a result, by 4Q 2022, the monthly cost of homeownership became $1,176 higher than the cost of renting a professionally managed apartment, according to NMHC estimates. This marks the highest buy-to-rent premium (on an inflation-adjusted basis) since the third quarter of 2006, the peak of the housing bubble.