Only Four Major U.S. Cities Offer More Affordable Homes Than Rentals

Data from Redfin reveals that in just four major metropolitan areas in the country, it is currently more cost-effective to purchase a home rather than rent one. These cities include Houston, Cleveland, Philadelphia, and Detroit. With an anticipated monthly rent of $1,697 in Detroit vs. a monthly mortgage payment of $1,296 for buyers, renting is 24% more expensive than buying there.

However, renting is strongly favored in some of the most expensive regions in the country. For instance, the San Francisco Bay Area has the highest percentage-based premiums for homeownership. In San Jose, the typical anticipated monthly mortgage payment is $11,409, 165% higher than the median estimated monthly rent of $4,176.

If you can afford a down payment and monthly mortgage, purchasing a home makes more financial sense because it helps develop equity, according to Taylor Marr, the deputy chief economist at Redfin. But due to rising mortgage rates and high property costs, not everyone can afford to buy a home. Due to frequent moves or the inability to fund a down payment, some people choose to rent.

Mortgage rates would need to drop significantly for buying to become more affordable than renting in big cities. The median anticipated monthly mortgage payment would still be 10% more than the median estimated monthly rent, even with a 5% interest rate. Homeownership would cost an extra 1% at a 4% rate, whereas it would cost 7% less at a 3% rate.

Despite Recession Predictions, Housing Construction Seems Promising

According to Fannie Mae’s Economic and Strategic Research (ESR) Group, a shift in housing demand has occurred, favoring the new home market. The “lock-in effect,” low inventory, and affordability restrictions have slowed home sales for the remainder of the year. As a result, there is now a higher demand for new houses, which has improved the prognosis for single-family starts.

New home sales witnessed a significant boost in March and have typically been heading upward since late 2022 while existing home sales have been progressively dropping as anticipated. Although pending house sales have decreased, this suggests that sales will continue to slacken in April and May.

Fannie Mae anticipates that the ongoing debt ceiling dispute will be settled without the United States government going into default. At the same time, something could go wrong and change the forecast.

Despite these difficulties, Doug Duncan, senior vice president and chief economist of Fannie Mae, believes that housing is still performing better than anticipated and will help to boost the economy’s growth in 2024.

MBA Weekly Survey of May 24, 2023: Reduced Mortgage Applications

For the week ending May 19, mortgage applications dropped by 4.6%, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. Due to borrowers’ susceptibility to rising rates—the 30-year fixed rate hit 6.69%, its highest level since March—applications decreased, buy applications barely increased while the refinance index dropped to its lowest point in two months. Both refinance and buy applications were impacted.

The concern about the U.S. debt ceiling and communication from Federal Reserve officials caused higher Treasury yields and mortgage rates. A persistent increase in purchase applications has yet to be seen, despite encouraging economic indicators and the necessity of new residential buildings for addressing housing inventory shortages.

The 30-year fixed-rate mortgage, jumbo loans, and FHA loans all increased the average contract interest rates for different types of mortgages. While the share of adjustable-rate mortgage activity climbed marginally, the share of refinancing activity remained steady. The percentages of FHA and V.A. applications in total also slightly increased.

 

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.