It’s no secret that the cost of buying or renting a home has significantly increased in the post-pandemic era. However, a recent analysis conducted by a Bank of America economist reveals that renting is still comparatively more affordable than buying.
The economist, Jeseo Park, points out that rents have risen to 26% of the median household income in the United States, while the ratio of mortgage payments to income has increased to 32%. Despite the increase in costs for both renting and homeownership, Park concludes that renting remains the more affordable option.
Interestingly, when examining major cities in the West, the analysis reveals a stark difference in affordability between buying and renting. In cities like Los Angeles, San Jose, San Francisco, San Diego, and Seattle, mortgage payments and taxes significantly exceed rent payments as a percentage of median income. The same dilemma is observed in other metropolitan areas, including New York, Portland, and Austin.
The data clearly highlights a housing market that has become more burdensome for the average buyer in comparison to pre-pandemic times. The combination of rising mortgage rates, which reached a 23-year high in October, and a lack of housing supply has resulted in higher home prices and discouraged many potential buyers.
However, Park also emphasizes that the current higher-for-longer rate environment is expected to persist. This could continue to challenge potential homebuyers, but once the Federal Reserve begins cutting rates in 2024, signs of improved demand and supply in the housing market are anticipated.
Q: Is it more expensive to buy or rent in the post-pandemic era?
A: According to a Bank of America economist, renting is still comparatively more affordable than buying.
Q: Which cities face the biggest affordability dilemma between buying and renting?
A: Major cities in the West, such as Los Angeles, San Jose, San Francisco, San Diego, and Seattle, have higher mortgage payments and taxes than rent payments as a percentage of median income.
Q: Are mortgage rates expected to decrease in the future?
A: The economist suggests that mortgage rates will remain higher for longer, making homeownership challenging for many potential buyers. However, a gradual improvement in demand and supply is expected once the Federal Reserve starts cutting rates in 2024.