- Property values tend to rise over time, but they've grown especially fast in recent years.
- Higher home prices and elevated mortgage rates make renting cheaper in top US cities.
- Landlords have a leg up over renters, even though apartment supply is steadily rising.
Gamblers learn early on that "the house always wins." In recent years, tenants have seen firsthand that the same is true of those who own houses — or apartment complexes.
Real estate is widely regarded as a smart investment since it tends to appreciate over time, plus it can deliver solid income to those who rent out their space.
No investment is risk-free, as property owners learned during the housing bubble. However, home prices have risen consistently in the last decade-plus, as the median US house is selling for nearly double what it was in late 2011. Apartment and condo values have also surged, according to the National Association of Realtors.
Monthly home payments have gone through the roof
But although buying land is a proven way to build wealth, doing so right now may backfire.
Renting remains cheaper than buying in nearly every major US city, according to an analysis by Business Insider, which is based on home price data from the National Association of Realtors and rent data from Rent.com that was first cited in a report by real-estate listings site Zoocasa.
Renters are paying less each month than new homebuyers on a 15-year fixed-rate mortgage in 30 of the 32 cities included in this analysis, based on the current mortgage rate of 6.28% and a 20% down payment.
The two exceptions were Pittsburgh and Buffalo, New York, where the median home price is $207,100 and $234,250, respectively. The respective monthly mortgage payments are $1,423 and $1,610, versus median rent of $1,801 in Pittsburgh and $1,737 in Buffalo.
And while buyers with a 30-year fixed-rate mortgage appear to be paying less per month than renters in 13 of 32 markets, that doesn't account for costs like property taxes, homeowner's insurance, and homeowners association fees, which can easily be hundreds of dollars. Buying a house on a 30-year mortgage only translated to monthly savings of at least $200 in seven cities.
These findings line up with those from leading real-estate researcher Ivy Zelman, who found in April that owning a home is roughly 9% more expensive than renting on a square-foot basis.
The home affordability crisis stems from stubbornly high home prices and exorbitant mortgage rates, which spiked alongside interest rates when inflation took off during the pandemic.
Landlords still hold the leverage, even as rent growth slows
While it may seem as if renters are getting relatively good deals since mortgage payments have made buying a house so costly, the real winners are landlords, as they often are.
Earlier this year, it seemed as if renters were gaining leverage on landlords, as they did early in the pandemic when so-called "COVID deals" abounded, especially in big cities like New York.
Apartment supply was rising, which made rent growth gradually drift downward. But it was a bit premature to celebrate that shift, as rent growth ticked up in March and was about flat in April.
Even though a more competitive rental market means landlords can't raise rent like they did during the pandemic, they're still benefitting from this historically unaffordable housing market.
Renters may have more apartment options, but buying a house is still off the table for millions of families until mortgage rates recede to more manageable levels, and landlords know it.
So, although tenants may be fed up with what they're paying in rent, the cards they hold are weak compared to landlords, who are playing with house money — in every sense of the word.
