Rising Costs of Homeownership vs. Renting

Buying a house usually costs more than renting one. This is because you have to pay for things like insurance, property taxes, and repairs. 

People expect to pay about 14% more for owning a house compared to renting on a regular basis. However, the gap between the cost of owning and renting has gotten significantly bigger recently.

Nowadays, owning a home can be at least 35% more expensive than renting. This is one of the highest differences in cost that we’ve seen. 

Rick Palacios Jr., a researcher at John Burns Real Estate Consulting, says the gap is much bigger compared to the old days, especially for people looking to buy their first home or rent a simple place to start out. He believes this is a big reason why fewer people are buying homes again, after they've been sold once.

Why is owning a home so costly now? Well, the price for homeowners insurance (that’s the insurance you must have when you own a house) has gone up a lot. 

Another factor is the high interest rates for home loans, which makes monthly payments more expensive if you've borrowed money to buy a house. According to some experts, home loan interest rates would need to drop to 3.5% for the cost of buying to be similar to the cost of renting, like in the old days.

CBRE, a company that invests in real estate, says that earlier this year, it was about 35% more expensive to buy a house than to rent one. This percentage went down a bit when mortgage rates dipped in the fall, from a record high of 52%. However, CBRE’s numbers don’t include the costs of homeowners insurance or repairs.

Travis Deese, who analyzes apartment market data for CBRE, thinks that the real cost might be even higher than their estimates. 

And while the situation may improve slightly in the future if home loan rates go down and rents increase a bit, high house prices will probably keep the cost of buying significantly above renting. CBRE expects the extra cost of buying to stick around 25% by the end of 2025.

There's a lot of arguments about renting versus buying. People who like to buy say it's good because it builds up their property value (called equity) and can protect them from future rent increases. On the other hand, people who prefer renting enjoy not having to deal with maintenance and appreciate the freedom to move easily.

Whether to buy or rent is a very personal decision. Most Americans still dream of owning their homes one day, even though the costs are going up. Meanwhile, rents have not increased quite as much recently. 

New apartment buildings have helped keep rent prices more stable. For example, the nationwide median rent only increased by 0.2% in October from last year, as reported by Redfin, a real estate company. 

However, in places where less new housing is being built, like the Northeast and Midwest, rents have gone up more.

When you’re ready, talk to a local mortgage and housing expert who can help you understand your home-buying options. For some who are eligible, you can look into getting help from government programs like the Housing Choice Voucher or down payment assistance programs. 

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