Renting will be cheaper than buying a home for years to come, real estate firm says
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- Renting will be cheaper than owning a home for a long time, according to CBRE.
- CBRE said that as buying costs soar, rental demand tend to also climb.
- The average mortgage payment was 38% higher than the average apartment rent at the end of 2023.
Owning a house feels increasingly out of reach for many would-be buyers, and the supply shortage across the country means that it'll be more economical to rent than own for a long time, according to CBRE.
A note from the real estate services firm shows that the average monthly mortgage payment was 38% more than the average apartment rent at the end of 2023. The two expenses were closely aligned until 2019, and monthly mortgage payments plus taxes have since skyrocketed 75%.
"The disparity between mortgage payments and rental costs presents a substantial hurdle for aspiring homeowners," said Matt Vance, CBRE's Americas head of multifamily research. "The sharp increase in the cost of buying a home has made it increasingly difficult for individuals and families to make the transition from renting to owning."
"Even though the premium to buy a home may come down over the next several years based on home-price, interest-rate and rent-growth forecasts, it is expected to remain high enough to keep today's renters renting for longer."
The firm also found that when buying costs rise, rental demand also spikes.
"We saw this play out in 2023, when normally slower Q3 and Q4 demand exceeded that of Q2. Prior to the pandemic, Q2 has almost always been the strongest quarter for absorption," the note said.
Looking ahead, multifamily rents are forecasted to rise by 2.8% annually for the next five years. This, combined with a shortage of 3.8 million homes, will require a mix of declining home prices and reduced mortgage rates to achieve parity between the cost of homeownership versus renting, CBRE said.
"With long-term mortgage rates expected to remain above their pre-pandemic levels, homeowners may find that the low financing they secured years ago will keep them in their current homes for longer. This in turn will continue to suppress for-sale activity, which will further boost home prices."