The national median mortgage payment in July had risen 33.3% during the first seven months of 2022, on both higher home prices and rapidly rising mortgage interest rates, according to the Mortgage Bankers Association’s Purchase Applications Payment Index. It’s a much bigger jump than the average increase in rent.
MBA’s national mortgage payment-to-rent ratio rose to 1.44% at the end of the second quarter, meaning the average mortgage payment is now almost 1.5 times as much as the average rent payment, and that amounts to hundreds of dollars a month more to buy than to rent.
More potential home buyers may decide it is better to keep renting than to buy right now.
If monthly costs are the sole reason for deciding whether to rent or buy, renting would be the obvious choice. But buying now would still have a long-term advantage.
“When you get a mortgage, your mortgage payments with principal and interest, stay fixed,” said Eddie Seiler, associate vice president of housing economics at the Mortgage Bankers Association. “Whereas in these high inflationary times, rents will probably keep going up. There are very low vacancy rates; there is inflation, and landlords have to cover their costs too. [Owning] a home, your mortgage payments are insulated from inflation.”
Still, the difference is currently stark.
Going back two years, the average mortgage payment and average rent payment were similar, according to Bloomberg data, which shows average rents have risen 20% since 2020, while average mortgage payments are up 58%.
Freddie Mac says housing affordability is the lowest it has been since 1989.
It also might be advantageous to wait a year to buy: MBA expects long-term borrowing costs to ease.
“The rates we have for the end of 2022 are at 5.2%. We expect those to come down beneath 5% for 30-year fixed-rate mortgages to 4.9% in 2023, and even lower in 2024, to 4.3%,” Seiler said.
