Millennials locked out of the housing market have this consolation: House prices have shot up so quickly that the financial advantage of being a homeowner is fast eroding in many cities.
While it’s still a better deal to buy in some cities, the economic benefit has narrowed to the point that in some places, for some households, the decision to rent or buy a home may be too close to call.
The shift has come because home prices and interest rates have risen recently, while rents have largely stagnated.
The difference between owning and renting has narrowed sharply from last year, when owners were paying roughly 41% less than renters. Add in that many apartment communities have additional amenities that you would pay for if you owned a home as well as eliminating the time spent on home maintenance.
In some popular cities, moreover, the homeowner advantage is close to being erased.
While mortgage rates have remained low since the 2008 financial crisis, rates around 7% are much closer to the historical norm. Federal Reserve officials, whose control of short-term interest rates gives them some sway over mortgage prices, expect those short-term rates to rise roughly two to three percentage points over the next few years.
It is absolutely cheaper to rent than buy when you plan to stay in a home for just a couple of years.