On paper, owning a home is almost always more expensive than renting -- about 14% more, on average, after factoring in expenses like insurance, taxes, and upkeep.
But the difference has grown much more extreme in recent years as just about all homeownership costs have ballooned.
How extreme? Exact cost estimates vary, but recently the premium for homeownership has been at least 35% over renting, a level that's near historical highs and is likely to persist.
"We're well, well beyond what the typical historical difference is if you were to buy an entry-level home versus rent a starter home," said Rick Palacios Jr., director of research at John Burns Research and Consulting. "I think that's a big part of why you see the resale market in a recession."
Palacios' firm has found factors like rising homeowners insurance premiums explain much of the growing gap. Higher mortgage rates don't help either. Leaving other factors constant, it would take mortgage rates to be at 3.5% for the buying versus renting math to return to historical averages.
Commercial real estate investment firm CBRE pegs the premium to buy versus own at about 35% earlier this year, with the dip in mortgage rates in the fall helping bring that level down from a record high of 52%. Their measure includes the cost of mortgage insurance that most lenders require, but doesn't factor in expenses like homeowners insurance or upkeep.
"If anything, what we present ... is a very conservative approach, said Travis Deese, associate director for multifamily research. "It likely is a lot higher than that."
The differential might get a bit less extreme next year if mortgage rates slowly drop and rents creep up, CBRE found. But stubbornly high home prices will prevent the premium from moving too much. The company expects the premium to end 2025 at around 25%.
Ownership dreams
Buying versus renting is a fierce debate in personal finance circles, and both factions come armed with talking points. Buyers point to how they're building equity and shielding themselves from the looming threat of rent increases. Renters tout their maintenance-free lifestyles and the ease of moving if they want to try living somewhere new.
The choice is ultimately personal, and buying remains the long-term goal for the majority of Americans. But while home ownership costs have continued to move higher, renters have recently gotten a little bit of a break.
Like home prices, rents are still markedly higher than pre-pandemic levels, but aggressive apartment construction has helped minimize further increases this year. Nationwide, median rents rose just 0.2% in October from a year earlier, according to Redfin, although areas with less construction, like the Northeast and Midwest, saw larger jumps.