Only 41 percent of the U.S. population lives in a county where a median-income household can afford to buy a median list price home
As home prices rise across the U.S., choosing to rent has become increasingly popular. New analysis by realtor.com® reveals the monthly costs of buying a home have risen by 14 percent over the past year. This is more than three times the 4 percent increase in monthly rental costs. Additionally, this analysis found that the number of places where it is cheaper to buy has significantly declined in the past year.
“Even setting aside big upfront expenses like a down payment, rising month-by-month costs are likely keeping many people from purchasing,” said Danielle Hale, chief economist at realtor.com®. “Today only 41 percent of people live in a county where the median income family can afford to buy a home at the median list price, and affordability declined significantly over the past year. Since home ownership has historically been an important source of household wealth creation, it could be problematic if this trend continues for too long. Still, even in places where renting is currently more affordable, rising home prices provide wealth building opportunity for home buyers.”
- Only 41 percent of the nation’s population lives in a county where a median-income family can afford to buy a home.
- Nationally, the cost to buy rose by 14 percent from July 2017 to July 2018, while the cost to rent increased by 4 percent.
- In July, buying a home was cheaper than renting in 35 percent of counties, compared to 44 percent of counties last year.
- The top five counties where purchasing a home was more affordable than renting last month were: Clayton County, Ga.; Baltimore City, Md.; Wayne County, Mich.; Cumberland County, N.C.; and Madison County, Ill., with the share of income to buy being 4 percent to 14 percent lower than the share of income to rent.
- Renting remains much less expensive than buying in Manhattan, N.Y.; Brooklyn, N.Y.; Monterey County, Calif.; San Mateo County, Calif.; and Santa Barbara County, Calif.
- In the last year, 20 counties with 100,000+ residents flipped from being cheaper to buy to being cheaper to rent, three quarters of which were in the South and Midwest.
Home Affordability Has Declined Over Past Year
Homeowner costs have continued to rise. In July 2018, the median monthly cost to buy a home was $1,647, compared to the average cost to rent a home at $1,267. Over the last year, 289 counties have transitioned from being more affordable to buy, to being more affordable to rent. The transition included 20 larger counties with more than 100,000 of which eight counties were in the South and seven counties in the Midwest. In just 35 percent of counties throughout the country, the monthly costs of buying a home are now lower than the monthly costs to rent a home – this compared to 44 percent just last year. This disparity is even greater among large counties. Buying is still cheaper than renting for only seven percent of counties in the U.S. with a population larger than 100,000 people.
Homeownership Likely to Decrease in Rental Markets
The price of entry into homeownership is becoming steeper in markets around the country. Using data from the REALTORS® Affordability Distribution Curve, the July study revealed that in the top 5 rental markets those earning the median county income could only afford up to 4 percent of their local housing market inventory. Homeownership rates in these markets ranged between 23 to 59 percent, compared to the national rate of 64 percent.
Conversely, for the top 5 counties that favor buying, 57 to 69 percent of homes currently available for sale are affordable to residents earning the local median income while homeownership rates ranged from 47 to 63 percent. The limited availability of homes affordable for the median household in top rental markets suggests that renters will continue to find it challenging to become owners in these areas. At the same time, the larger selection of affordable homes available to the typical income household in the top buying counties suggest that transitioning from renting to owning will be easier in these areas.
Northern California Has Widest – and Fastest Growing – Gap Between Ability to Rent and Buy
Northern California and New York each hold three of the top 20 counties with the largest increase in the rent-versus-buy gap over the past year (comparing the share of income necessary to do each). The gap for counties in California was the largest in large part due to the substantial run-up in home prices experienced there. In San Mateo, Santa Clara, and San Francisco counties, the costs to purchase a home now take up an additional 8 percent of income over renting when compared to last year. In San Mateo, for instance, it costs $8,405 to buy compared to $3,471 to rent.