Residential Real Estate News
More Americans Opting for Renting Over Homeownership in 2024
Mortgage Payments Outpace Apartment Rents by 35 Percent, Driving a Shift Toward Renting
According to new research by CBRE, the rising cost of homeownership is prompting more Americans to opt for renting. On average, monthly mortgage payments for new homes are currently 35% higher than apartment rents, creating a significant affordability gap. Mortgage payments, including taxes, have increased by 75% since late 2019, posing a substantial financial barrier for many households. While this premium is expected to narrow over the next several years due to shifting interest rates, home prices, and strong rent growth, it will likely remain wide enough to keep many Americans in the rental market longer.
CBRE projects annual multifamily rent growth of 3.1% over the next five years, exceeding the pre-pandemic average of 2.7%. Although this above-trend rent growth will slightly reduce the cost gap between renting and buying, it is anticipated that the premium to buy will only ease from 35% to 32% by the end of 2025, as lower mortgage rates and moderated home price appreciation take effect.
"The disparity between mortgage payments and rental costs creates a significant hurdle for individuals and families looking to transition from renting to homeownership," said Matt Vance, Americas Head of Multifamily Research at CBRE. "For many, renting offers financial advantages and lifestyle flexibility, allowing them to adapt to evolving priorities and circumstances."
Local Market Highlights:
Across the U.S., the cost-to-buy premium is expected to decline over the next five years due to lower interest rates, subdued home price growth, and robust rent increases. However, some markets stand out:
- Austin and Los Angeles currently have the nation's highest cost-to-buy premiums, with homeownership costing nearly 2.5 times the average rent. Although these premiums are projected to decrease, homeownership in these areas will remain more than twice as expensive as renting.
- Phoenix, Salt Lake City, and Nashville are positioned for the most significant reduction in cost-to-buy premiums. Strong renter demand and a slowdown in new multifamily construction are expected to accelerate rent growth in these markets, driving this trend.
