Buying Vs. Renting: Mortgage Payments Exceed Rents By Most Since 2006

Buying Vs. Renting: Mortgage Payments Exceed Rents By Most Since 2006

mortgage vs renting

Bedford-Stuyvesant neighborhood of Brooklyn, New York, June 15, 2009 (AP/Seth Wenig)

The rapidly rising cost of homes and skyrocketing interest rates have made mortgage payments more expensive than rental housing, with the buy-to-rent premium the steepest it has been since 2006 when the housing bubble peaked leading to the Great Financial Crisis. 

With a 10 percent down payment, the monthly payment on a 30-year fixed-rate mortgage cost $1,176 more than renting an apartment at the end of 2022, according to a report by the National Multifamily Housing Council (NMHC), a trade group representing owners of professionally managed rental buildings.

“The cost of housing (both rented and owned) has been rising for decades. However, these cost increases are simply more eye-popping in an inflationary environment, placing an increasing burden on American households,” wrote Chris Bruen, senior director of research for the NMHC.

The cost of homeownership has risen an average 20 percent per year the last three years compared to the 6.3 percent average annual growth of rent over the same period, the report said. From December 2019 to June 2022, the median sales price of existing homes in the U.S. grew nearly 50 percent.

However, since the collapse of Silicon Valley Bank on March 10, mortgage rates and bond yields are down as investors expect the Federal Reserve to pivot to rate cuts later this year, Markets Insider reported.

Mortgages are based on bonds, so if the broader bond market is losing ground, so are mortgage rates, Mortgage News Daily reported. Mortgage rates hit their lowest levels in six weeks on Friday, March 24 as investors braced for bad news in the banking sector.  Such fears tend pull money out of the stock market and into bonds.  Excess bond demand means lower rates.

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Mortgage rates fell for a second consecutive week, offering some relief in affordability, mortgage giant Freddie Mac reported on March 23. The average for a 30-year, fixed rate loan was 6.42 percent, down from 6.6 percent the previous week — the largest one-week decline since January.

The market is getting it wrong by predicting rate cuts in 2023, Federal Reserve Chairman Jerome Powell said during a March 22 press conference. Powell talked about the prospect of more interest-rate hikes, not less, when announcing the ninth consecutive rate hike in a year and the first after two weeks of banking turmoil.

The recent bank turmoil with Silicon Valley Bank and what followed could lead to more buyers entering the housing market, said Nadia Evangelou, senior economist and director of research at the National Association of Realtors, in an Insider interview.

“We had expected mortgage rates to come down to the lower range of 6 percent sometime in the second half of 2023, but now we may see that level in the coming weeks,” Evangelou said on March 15.

A chronic undersupply of housing of all types are driving prices up, Bruen wrote. Freddie Mac estimated there was a 3.8-million-unit shortfall of housing at the end of 2020, while a recent NMHC and NAA study found a shortfall of 600,000 apartment units in 2021.