Despite the recently tightened affordability of homeownership, buying a home is still a better financial option than renting in more than half of U.S. markets, according to Attom Data Solutions’ 2022 Rental Affordability Report. Owning a median- priced home costs less than the average rent for a three-bedroom property in 58% of the 1,154 U.S. counties analyzed, meaning that major homeownership expenses take up a lesser portion of the average local wage than rents do.
This conclusion is somewhat surprising as home prices continue to increase across the country — and median purchase prices have actually increased more rapidly than average rents and average wages in 88% of the counties covered in the report. Over the past year, home prices rose by more than 10% in most of the country, but these increases were mitigated by rising wages and historically low interest rates. During this time, average wages increased by about 8% while interest rates held near 3%, which allowed homeownership to remain affordable for many people.
As with anything in real estate, however, location is a critical factor in affordability. In the nation’s largest metro areas, renting remains more affordable, while less-populated suburban and rural areas have more affordable home prices and thus make owning the more appealing option. The ongoing COVID-19 pandemic continues to spur the purchase market, and with many companies offering remote-work options, many buyers are eyeing more affordable homes that are farther from large metros.
In the majority of the U.S. (particularly in large cities), median home prices are increasing more quickly than average three-bedroom rents. But there are some areas where rents are accelerating faster than home prices. The largest counties where rents are outpacing home prices include Allegheny County, Pennsylvania; Hidalgo County, Texas; Ventura County, California; Jackson County, Missouri; and Lake County, Indiana.
In general, as the size of the population grows, a given location is more likely to present renting as the more affordable option. Attom Data Solutions found that renting is more affordable than owning in 21 of the 25 most-populated counties, and in 35 of 42 counties analyzed with a population of at least 1 million. There are still a few large metros, however, where buying is more affordable than renting, and they include Harris County and Bexar County, Texas; Wayne County, Michigan; Philadelphia County, Pennsylvania; and Hillsborough County, Florida.
Whether buying or renting, housing remains more affordable in certain areas of the country. Attom Data determined that 43 of the 50 most-affordable rental markets are in the South or Midwest. And when it comes to purchasing a home, the South and Midwest again lead the way for affordability. Attom Data found that the most-affordable markets to purchase a home include Schuylkill County, Pennsylvania, where only 11.1% of the average local wage is needed to own a home. Next on the list are Vermilion County, Illinois (12.2%); Venango County, Pennsylvania (12.6%); Wapello County, Iowa (12.8%); and Edgecombe County, North Carolina (12.9%).
The West region, on the other hand, has some of the least affordable real estate in the U.S. for renters or buyers. Each of the 10 least affordable counties for renters are in California or Hawaii, where it requires anywhere from 68% to 84% of the average local wages to rent. The least-affordable markets for purchasing a home also are dominated by Western states — including portions of California, Colorado and Utah. In these areas, it can cost anywhere from 111% to 151% of the average local wage to buy a home.
These trends highlight the localized nature of real estate, but they also show a seemingly unsustainable growth pattern for home prices. The market is starting to slowly shift toward renters as home prices continue to outpace other metrics. If these trends continue, they could be a significant force in easing home-price appreciation this year. ●