A tough start for buyers — and renters — in 2023
A new report from ATTOM finds renting is more affordable than owning across most of the U.S., a big change from a year ago.
Key points:
- While renting a home is now more affordable than buying one, high rent rates are still eating up a big chunk of average wages.
- A few areas are still more favorable for buyers, including Detroit and Cleveland.
- Large metros tended to have the widest affordability gaps between renting and buying.
In a reversal from a year ago, it's now a better deal to rent a home than to buy one — but when it comes to affordability, it's still a matter of the lesser of two evils.
A new rental affordability report from ATTOM found that renting an average three-bedroom home is more affordable than owning a similar median priced home in 95% of the 222 largest U.S. counties analyzed for the report.
But that doesn't mean renting is a bargain. Rent is consuming more than one-third of average wages in most of these markets, with nearly half the markets studied seeing rent increases rising faster than the median price of homes, according to the report.
And buyers continue to face challenges of their own. Despite the slowdown in the real estate market in the second half of 2022 and the strong growth in salaries, home prices rose faster than wages in more than 90% of the U.S.
It's quite a turnaround from a year ago, said Rick Sharga, executive vice president of market intelligence for ATTOM. He noted that last year it was more affordable to own than to rent in 60% of the markets analyzed.
"But with mortgage rates doubling, monthly payments for new homeowners rose by 45-50% compared to a year ago, even though home price appreciation has slowed down dramatically," Sharga said. "This has made renting more affordable in the majority of markets, despite rental rates continuing to rise over the past year."
The trend is especially pronounced in the biggest urban markets — but rents for three-bedroom housing units are also rising fastest in those urban areas, particularly in Chicago, San Diego and Orange County in southern California.
The large metros where single-family home prices are rising faster than rents are Los Angeles, Houston, Phoenix, Dallas and Las Vegas.
Least affordable/most affordable markets to buy
While the report shows most homeowners across the U.S. would need to fork over more than one-third of their average local wages to pay the mortgage on a median price house, some areas are bucking the trend.
The most affordable market for owning a home is Detroit's Wayne County, where 24.1% of the average local wages is needed. Other relatively affordable markets include Montgomery County, Alabama (27.6%), and Cleveland's Cuyahoga County (27.7%).
According to the report, the least affordable counties are Honolulu (139.8% of average local wages needed to own a home), Kings County (Brooklyn), NY (125.9%) and Orange County, California (124.7%).
Widest gaps in big metro areas
Honolulu, Oakland and San Jose have the widest gaps between renting and buying, according to the report. Honolulu's rents eat up 66% of the average local wages, which is very high but still much better than buying, which takes up 139.8% of the average wage.
San Mateo County, California; Alexandria, Virginia; and Loudoun County, Virginia, have the biggest gaps for areas with less than one million people.
Chicago is the only large metro where it is (slightly) more affordable to buy than rent. The average rent in the Windy City consumes 40% of the typical local wages while homeownership requires 38% of wages.