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Land of the Renters: U.S. Homeowners Pay More Per Month
June 29, 2021

Land of the Renters: U.S. Homeowners Pay More Per Month

by The CE Shop Team

Homeownership Is Expensive, but Opportunities for Real Estate Agents Abound

Owning a home has long been an integral part of the “American Dream.” It has often meant paying less per month than you would to rent, qualifying for enticing tax benefits, and most importantly, building equity that leads to wealth.

Many of us grew up hearing that being a homeowner is one of the best investments you can make.

But buying a home has become a difficult feat for younger generations, and now, in this low-inventory real estate landscape, it can seem nearly impossible for anyone to enter the housing market. As prices skyrocket, buyers are turning to desperate tactics, from buying properties completely unseen to waiving appraisal or inspection contingencies.

Not everyone has the luxury of choosing whether to rent or buy, but those with the option might have different priorities and considerations than people had in decades past. Among other factors, new data shows that it’s often more expensive per month to buy than it is to rent. Many are wondering: What if buying a home is no longer the best option?

When Renting Is Cheaper Than Buying

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In all of the 50 largest metro areas in the United States, the monthly cost of renting is cheaper than the cost of owning a house while paying off a mortgage, according to a recent study by LendingTree.

On average, renters in the nation’s largest metros pay $606 less per month than homeowners do, the study says.

The metro areas where the difference between owning and renting is the widest are:

  • New York City, where the median monthly gross rent is $1,439 and the median monthly housing cost for homes with a mortgage is $2,802.
  • San Francisco, California, where the median monthly gross rent is $1,905 and the median monthly housing cost for homes with a mortgage is $3,088.
  • San Jose, California, where the median monthly gross rent is $2,249 and the median monthly housing cost for homes with a mortgage is $3,347.

The metro areas where the difference between owning and renting is the narrowest are:

  • Orlando, Florida, where the median monthly gross rent is $1,210 and the median monthly housing cost for homes with a mortgage is $1,508.
  • Tampa, Florida, where the median monthly gross rent is $1,115 and the median monthly housing cost for homes with a mortgage is $1,458.
  • Indianapolis, Indiana, where the median monthly gross rent is $916 and the median monthly housing cost for homes with a mortgage is $1,280.

“If you’re struggling with the decision to buy or rent a home, keep in mind that there’s no right or wrong answer,” the study says. “Carefully consider your budget, lifestyle, and financial goals to help you choose your best option.”

Buying Is Harder Than It Once Was

Although many experts say that owning a home does still pay off, with home prices generally increasing over time, entering the real estate market is more difficult now than ever.

Part of that difficulty is due to the current real estate landscape — home prices continue to rise alongside shrinking inventory. Meanwhile, some people fled expensive urban areas during the COVID-19 pandemic, causing rental costs to fall in some cities. (The rental market has shown signs of recovery, with renters being lured in by incentives like slashed rents, free months of rent, and the elimination of fees.)

But it’s also due to the fact that while home prices have generally risen over the decades, wages haven’t kept pace, Curbed reports. In 1950, the median home value was $7,400, the median rent was $42, and the median household income was $2,990. Home values and rental costs rose sharply — reaching $221,800 and $901, respectively, by 2010 — but incomes increased relatively modestly, reaching a median of $49,445 in 2010. (If incomes had risen at the same pace as home values, the median household income would have been just under $90,000 in 2010.)

“But it’s important to emphasize how the factors that created the homeownership boom in the ’50s — widespread government intervention that tipped the scales for single-family homes, more open land for development and starter-home construction, and racist housing laws and discriminatory practices that damaged neighborhoods and perpetuated poverty — have led to many of our current housing issues,” Curbed reports.

For younger generations, such as millennials or Gen Z, the cost of a down payment to purchase a home could be especially prohibitive, considering how far behind they are in acquiring wealth. Recent data shows that despite making up the largest share of the workforce, millennials hold just under 5% of U.S. wealth. In 1989, when boomers were millennials' age, they held 21% of U.S. wealth.

How Debt Influences Whether to Buy or Rent

A 2020 Freddie Mac survey showed “that affordability remains top of mind for those individuals looking to rent or purchase a home.” An unprecedented 84% of renters said they believed renting was more affordable than owning, an all-time high for the survey and up 17 percentage points from February 2018.

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Source: Freddie Mac

For some younger people, student loan debt also factored into whether or not they could purchase a home. Earlier this year, the National Association of REALTORS® released its “Homebuyers and Sellers Generational Trends Report” showing that among millennials who had debt, that debt “hindered their ability to save for a down payment by a median of three years and came primarily from student loan debt, followed by high rental costs holding back saving.”

The report shows that 43% of younger millennials (aged 22 to 30) reported having student loan debt with a median loan balance of $25,000, compared to 37% of older millennials (aged 31 to 40) with a median balance of $33,000.

Younger millennials and older millennials together make up the largest share of homebuyers at 37%, NAR says. But 28% of younger millennials used a gift or a loan from a friend or relative to purchase their home.

With these factors in mind, some say that it’s tough to know whether renting or buying is truly better in the long run — and that investing the money that would go toward a down payment (or the savings from renting) is more likely to pay off.

“Arguing about whether rent versus buy is a better financial decision is like debating active versus passive investment strategies, hedge funds versus mutual funds, Apple versus Google,” said Milo M. Benningfield, a financial planner in San Francisco, in an interview with The New York Times. “Somebody’s going to be right in terms of higher returns in the future, but we can’t know in advance who that will be — and it will be tough to quantify how much risk was taken along the way.”

Deciding whether to rent or buy is an enormous decision, and first-time homeowners can often feel overwhelmed by the questions they have and the challenges they face, regardless of their age. The best real estate agents are those who are equipped to guide their clients through the process.

Revenue Opportunities Outside of Buying and Selling

Perhaps all of these homeownership stats also have you feeling overwhelmed as an agent. After all, if people are turning away from purchasing property, what can you do to both serve your community and make a living? Luckily there are plenty of ways for real estate professionals to make money outside of buying and selling homes.

For example, some agents charge a commission to help property owners rent out a space. It’s different from property management, which occurs when an agent oversees the property for the length of the lease. In this case, the agent often just helps find a quality tenant.

“Hiring a real estate agent to handle the logistics of renting out your property can be a smart move — one that many homeowners make,” Realtor.com says. “An agent can create a listing for you, help you check out applicants, and generally manage other aspects of renting so you don’t have to.”

The commission varies widely, but Realtor.com says that a common range is around the cost of one month’s rent. And if securing tenants for rental properties doesn’t sound like your cup of tea, your real estate license opens the door to a career in real estate investing, home flipping, real estate law, and so much more. However you decide to build your business, know that there’s a place in the real estate industry for you.

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