Renters Get Priced Out

Buying a starter home is more affordable than renting in nearly half of the biggest U.S. metros.

Mortgage Banker Magazine
Mortgage Banker Magazine
Single family homes line an expensive street in San Francisco with the city in the background.
However, seven of the top 10 markets where monthly starter home costs were higher than rents are tech-heavy areas.

COVID Effects

Hale added, many of July's highest rent gains were seen in secondary markets where rental demand has exploded during COVID, driven in part by remote work enabling employees to escape crowded, expensive big cities – at least temporarily. With the future of remote work uncertain for many Americans, first-time homebuyers saw less of a frenzy than renters in a number of July's highest-priced rental markets. This has helped keep monthly starter home costs an average 15.5% ($216) lower than rents in nearly half of the 50 largest U.S. metros. (See methodology below.)

Relative Affordability

In the top 10 metros that favored first-time homebuying over renting in July, monthly starter home payments were an average 24.3% lower than rents, driven in part by lower median listing prices ($192,000) than the national average ($297,000). The types of starter homes for sale also play a key role in monthly payments, with active inventory in these buyer-friendly metros including nearly two times the share of single-family starter homes (56.1%) than in condo-heavy markets that favor renting.

In July, the top 10 markets that favored buying over renting were: Birmingham, Ala. (33.1% lower), St. Louis, Mo. (29.4% lower), Pittsburgh (27.7% lower), Orlando (25.9% lower), Cleveland (25.7% lower), Tampa (22.9% lower), Baltimore (20.5% lower), Indianapolis (20.4% lower), Virginia Beach (19.2% lower) and Riverside, Calif. (18.5% lower).

Many of these metros also posted sizeable rent gains over last year in July, led by Riverside (+29.7%), where the median rental price of $2,230 was 18.5% ($413) higher than starter home payments, at $1,817 per month. Even with the surge in prices, Riverside rents were relatively lower than in nearby Los Angeles ($2,742), making the metro an attractive option to big city renters looking to save during COVID. Compared to Los Angeles, first-time homebuyers in Riverside saw 51.5% lower asking prices and nearly three times the share of single-family starter homes, at 75.1% of entry-level inventory in July.

Tech City Trends

Typically some of the nation's most expensive housing markets, big tech hubs largely favored renting over buying a starter home in July, partly attributed to higher condo HOA fees. Among 0-2 bedroom homes in these top 10 cities, over seven-in-ten (71%) were condos, on average, compared to 58% nationwide, while median HOA fees of $334 among homes that had this fee were 27% higher than the U.S. median ($263).

Seven of the top 10 markets where monthly starter home costs were higher than rents are tech-heavy areas, including: Austin, at 79.2% higher; San Jose, at 47.5% higher; San Francisco, at 44.4% higher; Seattle, at 44.2% higher; Boston, at 40.9% higher; Los Angeles at 39.4% higher; and New York, at 32.0% higher.

While rental prices have surpassed pre-COVID levels in the majority of U.S. markets, rents in many of the biggest tech cities have yet to catch up to historical peaks. Among the 50 largest U.S. markets, the only four where rents declined from last year in July were all big tech hubs: New York (-6.1%), Boston (-3.7%), San Francisco (-2.9%) and Chicago (-1.4%).

Leading the list of metros that favor renting by a wide margin, at $1,228 higher monthly starter home costs than rents, Austin is currently one of the nation's most competitive housing markets. While costs like median HOA fees are relatively lower in Austin compared to other big tech cities, at $104 versus $1,222 in New York, first-time homebuyers are competing for limited affordable options, with 0-2 bedroom home inventory down 59% year-over-year and prices up 17.5% to a median $431,000 in July.

“Emerging tech hubs like Austin have seen a surge in housing demand in recent years as more Silicon Valley companies have opened or expanded offices in these areas. Relocating employees, including many millennials, can see their housing dollars go much further, with rental costs roughly half as high as in San Francisco and San Jose and starter home costs more than a third lower. With growth expected to continue in Austin, there's a premium on real estate, but California transplants may find that relative affordability creates first-time homebuying opportunities,” Hale said.

Mortgage Banker Magazine
Mortgage Banker Magazine
This article was originally published in the Mortgage Banker August 2021 issue.
Published on
Sep 08, 2021
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