Home prices increased 70 percent more than rent costs: study

Pittsburgh had the lowest home prices and the smallest price-to-rent ratio, Home Bay found. (iStock)

Americans have found themselves in an affordable-housing crisis as home sales have declined and home prices have outpaced inflation, according to a study by Home Bay.

As a result, many Americans have stuck to renting as they save to buy homes, Home Bay reported. 

In fact, the average home price has increased 70% more than average rent price across the U.S. since 2016, according to Home Bay. Moreover, it was more affordable to rent than buy a home in 45 of the 50 most populous U.S. cities, based on Home Bay’s analysis of monthly rent and mortgage payments.

For its report, Home Bay compared the price-to-rent ratios — calculated by dividing the median home price by the median annual rent — of the 50 most populous U.S. cities. A

The city with the highest price-to-rent ratio was San Jose with a ratio of 38, according to Home Bay. Meanwhile, the city with the lowest ratio was Pittsburgh with a ratio of 12.

On a national level, the average monthly mortgage payment was $174 more than the average rent payment, Home Bay reported. Meanwhile, in major metro areas, the average monthly mortgage payment was $872 more than the average rent payment.  

"Given that both rent and home prices around the country are high, Americans should look at price-to-rent ratios to determine whether they can reasonably save to make a purchase in a certain metro," Home Bay said in its report. 

If you’re looking to keep home buying costs down, it can help to shop around for the best mortgage. You can visit Credible to compare options from different lenders, without affecting your credit score. 

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Where is it cheaper to buy than rent? 

Even though mortgage payments were higher than rent payments in many major cities, there were some metros where it was better to buy than rent, Home Bay found. 

These are the 10 cities where buying a home was better than renting, based on Home Bay’s analysis:

  • Pittsburgh
  • New Orleans
  • Chicago
  • Cleveland
  • Memphis, Tennessee
  • Miami
  • Detroit
  • Oklahoma City
  • St. Louis
  • Tampa, Florida

"Pittsburgh, while tied with other cities such as New Orleans, Chicago, and Cleveland for the lowest price-to-rent ratio of 12, is the best city for buyers because it also has the lowest home prices of all cities we studied ($188,419)," Home Bay said in its report. "New York City has the highest home prices at $559,117, but given that rent is typically $3,068 a month, residents are actually better off springing for a mortgage than paying rent to a landlord."

Based on the price-to-rent ratio, the South remained the best place to buy a home instead of renting, according to Home Bay’s study. 

"Half of the top 18 cities for buying are located in the South: New Orleans, Memphis, Miami, Oklahoma City, Tampa, Birmingham, Houston, Louisville, and Atlanta," Home Bay said in its report. 

If you’re ready to become a homeowner, it can help to shop around for the best mortgage rates. Visit Credible to get your personalized rate in minutes. 

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Experts mixed on mortgage rate forecasts

While home prices have been on the rise and outpaced inflation in the past few years, some experts appear to be split on the direction mortgage rates will go in the near future.

"Although forecasts are mixed, so far the Federal Reserve seems focused on its inflation-reduction targets, which suggests that interest rates may remain elevated, at least in the near term," Craig Lazzara, S&P Dow Jones Indices managing director, said in a statement.

"Mortgage financing and the prospect of economic weakness are therefore likely to remain a headwind for housing prices for at least the next several months," Lazzara continued. 

Still, other experts have forecasted that home prices could eventually drop through 2023, before rising again. Experts polled by Zillow said they expected home prices to decline by 1.6% through this year. However, they also predicted that home prices could bump back up at an average rate of 3.5% per year from 2024 to 2027.

"The majority of experts are now predicting an outright decline in U.S. home prices in 2023," Pulsenomics founder Terry Loebs said in a statement. 

If you’re looking to jump into the housing market, it could benefit you to compare your options and pick the best mortgage rate. Visit Credible to speak with an expert and get your questions answered. 

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