As mortgage rates fall, many American renters are revisiting the age-old question: rent or buy? While mortgage rates have dipped slightly, high home prices still make ownership a stretch for many. So, is now the time to buy? Let’s break down the latest trends and see how they change the math.
Mortgage Rates Drop, But Is It Enough?
Following the Federal Reserve's rate cut, average mortgage rates dropped to just over 6%. While this has encouraged some prospective buyers to re-evaluate their options, the numbers often still don't add up. According to Nick Villa, an economist at Moody’s, mortgage rates would need to drop to around 5.25% for the monthly payment on a $419,000 home to match the national average rent of $1,840.
For many renters, this means homeownership remains out of reach. Although rents are high, the gap between the average rent and a mortgage payment is still substantial, often by hundreds of dollars per month. As a result, some renters are opting to wait for rates to drop further or for home prices to stabilize before making the leap into homeownership.
The Housing Market Standoff: Buyers vs. Sellers
The current housing market is at a standstill, with both buyers and sellers hesitant to make a move. Many homeowners are reluctant to sell their properties because they secured mortgage rates as low as 3% and worry they won’t get top dollar in today’s market. This reluctance, combined with elevated home prices, has cooled the market, causing home sales to decline in August despite lower mortgage rates.
For renters like Asef Wafa, the rate cuts offer some relief, but not enough to justify buying. Wafa and his wife pay $3,200 a month for a two-bedroom rental in Jersey City, N.J., and estimate it would cost them nearly $6,000 a month to own a three-bedroom home in their preferred neighborhood. “Buying becomes more justifiable if interest rates fall below 4.5% or if we have a child,” he said.
Rent vs. Buy: Location Makes All the Difference
As with all things in real estate, the decision to rent or buy is highly dependent on location. For example, in Chicago, a $400,000 home with 10% down and a 6.25% mortgage rate would result in a monthly payment of around $2,217 (not including taxes or insurance). Meanwhile, the median rent in the city is about $1,969. The difference is hundreds of dollars, making renting the more affordable option for many.
On the other hand, in cities like New Orleans and Pittsburgh, it can be cheaper to buy than rent. However, this assumes buyers can afford the 20% down payment required to make the numbers work. In cities like San Antonio and Philadelphia, the typical rent and mortgage payments are nearly equal, but buyers still face limited inventory and rising home prices.
Life Events: The X-Factor in Rent vs. Buy Decisions
While the numbers don’t always favor buying, major life changes—like a new job, marriage, or having a baby—often tip the scales. Financial planner Anthony Syracuse notes that if you plan to live in a home for at least five years, it might be worth buying. This timeline allows homeowners to break even on closing costs and real estate fees, while gaining equity over time.
Rick Sharga, CEO of CJ Patrick Real Estate Consulting, agrees, adding that if the monthly rent is comparable to homeownership costs (including mortgage, insurance, taxes, utilities, and maintenance), buying is often the smarter choice. Over time, most homeowners will see benefits through equity and potential tax savings.
Renters Playing the Waiting Game
With the market still in flux, many renters are choosing to stay put. A recent report from RentCafe revealed that 62% of renters renewed their leases in the second quarter of this year, up from 60.5% a year ago.
Take Laura Heninger, for example. The 35-year-old Orlando resident pays $3,500 a month to rent a one-bedroom condo but wants to buy a two-bedroom unit. However, the cost to buy a comparable condo would be about $5,000 a month—largely due to rising insurance costs. Heninger, who previously owned a home with a 2.5% mortgage rate, says she’s waiting for rates to drop to 3% before buying again. “I feel like I’m asking for the impossible,” she said.
