Rent Or Buy? Amid Housing Market Shift, Signs Point To ‘Rent’  (2024)

For the first time in decades, it’s looking better to rent than to buy a home.

As steep prices and mortgage rates keep home ownership out of reach for many Americans, the housing market is undergoing a major shift. New industry data reveals the cost of buying is at a 30-year high compared to renting. In some markets, the difference between a monthly house payment and a monthly rent check exceeds $1,000.

Overall, mortgage rates and home prices have accelerated so much in 2023 that the “buy premium”—the difference between the monthly cost of a new home purchase versus a new lease—has reached a historical high of 52%, according to CBRE.That premium was -1%—meaning that rent was higher than the cost of owning a home—in the fourth quarter of 2021.

The Case for Renting vs. Buying

Mortgage costs continue to soar, with loan applicants signing on for a median monthly payment of $2,199 as of October, according to the Mortgage Bankers Association. That’s up 9%--or $143 more per month–from a year ago. In contrast, rents are dropping. Rent.com data shows that October’s national median monthly rent was $1,978, down 1.6% from the previous month and a 0.29% drop from a year earlier.

As of the third quarter, it cost $1,138 more per month to own a new home than to pay rent on a new lease, once taxes and private mortgage insurance, or PMI, are figured in, according to research done by commercial real estate service provider CBRE.

“It’s a pretty sticky situation,” says Matthew Vance, Americas head of multifamily research at CBRE. Vance, himself a renter, plans to move next year—into another rental property.

“Some believe [home prices] will go down and so they’re holding on until that happens,” he says. “We’re not confident that will happen.”

Related: Home Affordability Calculator

Vance doesn’t see home prices dropping anytime soon because of the extremely limited supply of houses on the market. Housing industry economists have said it will take years to build enough new homes to meet high demand.

Market rents had also been rising. But now that the supply of rental housing is increasing—an estimated 1.2 new rental units have been built since the pandemic began—demand is softening. Median monthly rents fell in October to their lowest level since April 2023. It was the first time in five months that the median slipped below $2,000, according to Rent.com.

Mobility, Lower Monthly Cost More Appealing to Some Than Expensive Equity

Whether by choice or necessity, the Urban Institute has estimated that between 2020 and 2040 the number of renters will increase twice as fast as the number of homeowners.

A national survey of apartment renters by the real estate analytics firm RealPage found two-thirds of them preferred to rent, citing lower costs and greater flexibility when relocating. More than half of Gen Z renters said they’d rather rent than buy.

“There was a mindset when I was growing up that my mom definitely fostered: You own your home. That’s your asset; that’s where the value is. And I just don't know if I believe that anymore,” says Ambre Goff, who sold a 2,500-square-foot home earlier this year and moved her family of three into a 1,000-square-foot rental in Jacksonville, Florida.

While a home is typically a valuable asset, it’s not the only way to build wealth. Over the past decade, home prices are up about 93%, according to the Case-Shiller Home Price Index. But over the same period, the S&P 500 has risen almost 150%..

“I love renting now. It’s just way more relaxing, way less expensive and less mess, less fuss,” says Goff, a registered clinical mental health counselor.

Should You Rent or Buy a Home In 2024?

The decision about whether to rent or buy a home in today’s inflationary environment rests largely on what you can afford—and whether the home you want is available at that price in your preferred area.

If you opt to buy a home, be aware that the mortgage rate isn’t the whole story. You may also have to factor in additional funds for homeowners insurance, taxes, utilities and commuting costs.

“All of that needs to be in that equation but also, how long you plan to live in that home,” says Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.

“If that potential homeowner only plans on living there for a couple of years, maybe…they need the flexibility that renting provides at this moment and they can buy later down the road,” she says.

Ownership will always have an upside, however. As home prices remain high, “equity is still being built by homeowners,” says Lautz.