Buying now costs $1066 more a month than renting, Zillow finds
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Renting a home now costs $1066 less each month than buying one in the typical US market, widening a financial divide that could keep more households in rentals for longer.
The typical US asking rent reached $1948 in August, according to Zillow. By comparison, the monthly cost for a typical new home buyer was $3014, including mortgage payments, taxes and insurance.
That leaves renters paying $12,792 less over a year. Zillow found that renting was cheaper than buying in all 50 of the largest US metropolitan areas.
The difference has also grown. The monthly cost for a new buyer increased by $140 over the previous six months, while typical rent increased by $32.
For rental operators, developers and investors, the figures point to a wider change in housing demand. High homeownership costs are making it harder for renters to move into the sales market. That may extend rental tenures even as rent growth slows in many cities.
High buying costs are changing the housing decision
The financial hurdle between renting and buying extends beyond the difference in monthly payments.
Zillow estimates that a household needs annual income of $77,919 to afford a typical rental. A household buying a typical home with a 10% down payment needs more than $120,500. That creates an income gap of more than $42,000.
The divide is widest in high-cost coastal markets.
In San Jose, the typical monthly cost of buying was $11,698 in August, compared with rent of $3815. That creates a monthly difference of $7883.
Renting was $5413 cheaper each month than buying in San Francisco, $4441 cheaper in Los Angeles and $4235 cheaper in San Diego.
These figures help explain why renting can remain financially attractive even for households that could buy.
Zillow also calculated what could happen if renters invested the difference between their rent and the cost of buying. At the national level, it estimated that a renter investing $1066 each month at the August 10-year Treasury yield could earn an additional $322 during the first year.
That comparison has limits. It assumes households consistently save the difference. The longer-term financial value of homeownership also depends on house prices, maintenance costs, transaction costs and how long a buyer stays in the property.
The broader issue for the housing sector is more direct. Moving from renting to ownership now requires a much higher income and larger monthly commitment.
Renters are gaining leverage as rent growth slows
Longer rental tenures do not automatically give landlords more room to raise rents.
Zillow reported annual rent growth of 2.5% in August. Its typical asking rent of $1948 was 0.2% higher than in July. Rents have risen 38.5% since the start of the pandemic.
Other rental data points to softer conditions.
Realtor.com reported that median asking rent for studios through two-bedroom homes across the 50 largest metros was $1699 in August, down 0.9% from a year earlier. It marked the 37th consecutive month of annual declines in its measure.
The difference between Zillow and Realtor.com reflects differences in methodology, property coverage and the way each company measures the market. Together, the figures show a rental sector where pricing conditions vary sharply by location and property type.
Concessions are another sign of competition for tenants. Zillow said 39.2% of its rental listings offered a concession in August, up 2.5 percentage points from a year earlier.
Bureau of Labor Statistics data also showed that shelter costs continued to rise in August, although at a more moderate rate than during earlier post-pandemic years.
For property operators, the picture is mixed. Demand can remain firm because buying is expensive, while additional rental supply and competition can limit rent increases.
Longer rental tenures could shift where demand grows
The change is already playing out differently across rental categories.
Zillow said single-family asking rents were 3% higher than a year earlier in August, compared with 1.9% growth for multifamily properties. The typical single-family asking rent reached $2289, while the multifamily figure was $1774.
That gap matters because households that delay homeownership may not remain in the same type of rental property.
A renter who might once have moved from an apartment into an owner-occupied house may instead look for a larger rental home. That could support demand for single-family rentals, particularly among households seeking more space without taking on a mortgage.
For multifamily operators, the picture depends heavily on local supply. Apartment construction completed during the past several years has increased competition in some markets, helping tenants secure concessions and limiting rent increases.
Operators therefore face two forces at the same time. Expensive homeownership can keep people renting longer, but that does not guarantee strong rent growth.
Mortgage rates, new apartment supply, concessions and the difference between monthly rent and homeownership costs will help determine how the market develops.
For now, the $1066 national monthly gap shows how far the economics of renting and buying have moved apart. If that divide remains wide, the path from tenant to homeowner may continue to lengthen, changing both the profile of US renters and where housing demand is directed.
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