A growing number of Americans are choosing to rent over owning a home due to a significant affordability gap. According to the latest research from CBRE, the average monthly mortgage payments for new homes is 35% higher than apartment rents.
CBRE research finds that average mortgage payments, including taxes, have increased by 75% since late 2019, barring many households from taking the homeownership step. Even with the premium to purchase a home expected to decrease in coming years due to changes in interest rates and home prices and strong rent growth, the gap is projected to remain wide enough to keep households in the rental market for longer.
Annual growth of 3.1% in multifamily rents is expected over the next five years, exceeding the pre-pandemic average of 2.7%, according to CBRE. These growth trends are expected to outpace home price appreciation. Combined with lower mortgage rates, the cost gap between buying and renting will slightly narrow, with CBRE forecasting it to ease to 32% by the end of 2025.
“The difference between mortgage payments and rental costs poses a substantial challenge for individuals and families trying to transition from renting to homeownership,” said Matt Vance, Americas head of multifamily research at CBRE. “Many are finding that renting not only offers financial advantages, but also provides the flexibility and lifestyle benefits they value, allowing them to adapt to changing circumstances and priorities.”
The cost-to-buy premium is expected to shrink across all markets over the next five years. However, some markets will remain outliers.
Austin, Texas, and Los Angeles have the nation’s highest cost-to-buy premiums, with homeownership costing nearly 2.5 times the average rent. Although the premiums are expected to decrease in coming years, homeownership will continue to be more than twice as expensive as renting.
On the other end, high-growth markets—such as Nashville, Tennessee; Phoenix; and Salt Lake City—are expected to see the most significant compression in cost-to-buy premiums. This will be fueled by strong renter demand and a slowdown in the delivery of new multifamily units, driving faster rent growth in these locales.
