Newmark & Atlanta Federal Reserve Estimate The Difference Between Cost of Ownership & Renting Grew by 7.6% YOY in Q3 2024
Newmark has released its Q3 2024 U.S. Multifamily Capital Markets Report, and it is not good news for aspiring homeowners. According to the report, the spread between the cost of homeownership and the cost of renting grew to $1,203 in the third quarter of 2024, meaning that the cost of renting is notably more cost effective than homeownership. The main driver of higher homeownership costs is higher interest rates, but higher insurance premiums are also playing a role.
Comparative Costs Favor Renting over Homeownership
In addition, higher interest rates are preventing existing homeowners from selling their current homes, and this is constraining for sale inventory and pushing up home prices. The high cost of homes, especially on the West Coast, is also fueling rental demand.
Historically high rates of household formation is also supporting demand for both for sale and for rent housing. In fact, from 2014 to 2023, the United States added 16.5 million new households, and new household formation has increased year over year in each of the past 10 years, according to Newmark, with new households increasing by 1.3% in 2023, 40 basis points above the long term average.
Despite their interest in owning a home, aspiring homeowners generally have higher credit card debt and therefore fewer resources for down payments. In fact, credit card debt has continued to hit record highs each quarter
Consumers Have Less Money for Down Payments as Credit Card Debt Grows
These issues are causing a decline in hope among renters who hope to buy a home within the next three years. According to the New York Federal Reserve, consumer sentiment among renters of all ages indicate that only 40.1% are likely to buy a home in the next three years, down from 51.8% four years ago. Respondents under 50 showed considerably more optimism, but their confidence has dropped sharply to 48.7% from 67.1% in 2020
Renters Probability of Buying a Home Within the Next 3 Years
The result, quite obviously, is that rental demand will remain elevated for the foreseeable future. This indicates that investments in rental housing, both for upgrades of existing rentals and purchases of new property, should provide above-market returns for several more years to come