Renting Reigns As Mortgage Rates Soar, But Homeownership Still Holds the Crown

Owning a home is becoming a pipe dream for many young adults, as exorbitant housing prices coupled with sky-high mortgage rates have created an affordability crisis. 

According to a recent Redfin report, potential homebuyers currently require a six-figure salary to qualify for a median-priced home in the U.S., as mortgage rates are holding above 7%. 

Approximately 61% of renters have expressed skepticism that Generation Z and millennials will ever achieve the same level of homeownership as baby boomers, according to a survey of 1,000 renters conducted by Home Bay. 

While 85% of the respondents aspire to become homeowners, only 44% believe that homeownership is within reach for the average American. 

Rent Crisis 

The U.S. rent crisis has been worsening over the past decade. After adjusting for inflation, the average rent increased by 21% between 2001 and 2020. Wage growth over this period has only risen by 2% over this period. 

High inflation rates after the post-pandemic exacerbated the crisis, as median rent rose by as much as 17.7% year over year in 2022. 

Median rent growth has cooled substantially since then, ranging from negative 2.1% to 2.4% year-over-year in 2023. The median rent amounted to $1,964 in January, marking a 1.1% rise from the same period last year. Notably, this marks the highest annual hike in rents since March 2023. 

While rent growth has stabilized, the median rental prices remain high. This can be attributed to elevated mortgage rates and strong demand for rental units. To attract tenants, some landlords are resorting to one-time incentives such as one month’s rent or reduced parking fees without officially reducing the listed rental prices.

In January, the Midwest saw a significant increase in median rent by 4.6%, reaching a record high of $1,437. The Northeast had a smaller increase of 2.3%, bringing the median rent to $2,427. The West experienced a modest 0.6% rise to $2,358. In contrast, the South had no change in rent, remaining at $1,637. 

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Financial Constraints Of Renting Vs. Owning

While owning a home results in significantly higher upfront costs including down payments and property taxes, it builds up equity and wealth. While renters have to adhere to restrictions and are usually not permitted to make any significant changes, homeowners have the freedom to modify their homes according to their preferences. 

Owning a home also provides more financial certainty than renting. Homeowners with fixed-rate mortgages for 30 years have predictable housing costs, unlike renters who may experience rising rent every time they renew their lease.

"Stability is clearly an advantage to a homeowner, but the cost and the down payment can make it unaffordable," said Susan Wachter, a professor of real estate and finance at The Wharton School of the University of Pennsylvania. "There are renters who are simply discouraged from saving because it has become so difficult in some markets to become a homeowner."

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