The United States is currently experiencing the largest numerical gap in the monthly cost of owning a home as compared to renting a home in over 50 years, as a result of both rising home prices and rising mortgage rates.
On the other hand, Americans have been exposed to situations very much like this one since the 1980s.
The following chart presents information obtained from Reventure Consulting to compare and contrast the costs of purchasing a single-family home in the United States with those of renting one over the course of the last four decades, taking into account the effects of inflation.
New Record High in Mortgage Rates
The interest rate on a national average 30-year fixed mortgage reached 7.48% in August 2023, marking the highest level seen in the mortgage market in the past 23 years.
Because of this, the median cost of renting a home in the United States is approximately $1,850 per month, which is approximately 30% less expensive than the median cost of buying a home, which is $2,700 per month. This disparity constitutes the greatest difference between renting and purchasing in the annals of United States history.
In 2022, the disparity was less than $200; however, by 2023, it had surpassed $800.
There have been a lot of buyers priced out of the market recently, particularly those who were looking to make their first home purchase, because of concerns that they cannot afford to become homeowners. As a direct consequence of this, the number of mortgage applications submitted for the purchase of homes has dropped to its lowest level in the past 20 years:
As a result of the market adjusting itself after the sharp increase in rent costs that occurred during the pandemic, rent costs have also increased, but not at the same rate as before.
In 2023, will mortgage rates decline?
Long-term home loans, such as mortgages with a fixed interest rate for 30 years, are impacted when interest rates rise. And beginning in the year 2022, the Federal Reserve started the process of raising interest rates from their previous level of near zero to their current range of 5.25-5.5%.
The Federal Reserve recently revealed new projections, which indicated that the interest rate could potentially reach 5.6% by the end of 2023, which implies at least one more rate hike in 2023. These projections were unveiled in light of recent economic data.
As a consequence of this, a great number of financial analysts believe that mortgage rates will most likely remain higher than 6% for the remainder of this year.