With rapidly rising mortgage rates making home ownership unaffordable and record demand for rental homes in South Florida, residents face a pressing question: is it more affordable to rent or to buy?
In a normal market, the decision is often interchangeable. When rents are high, people may find relief in lower house prices. And when housing prices have risen, rental housing can often be a more affordable option.
But in this market, where rental and housing prices are skyrocketing due to low supply, some experts are leaning towards renting as the slightly cheaper option given rising interest rates, the skyrocketing appreciation of the home and the cost of a down payment.
The Buy vs. Rent Index recently released by Florida Atlantic University suggests that it is slightly better to rent now than to buy, and reinvest any extra money.
“It’s a tough choice,” said Ken H. Johnson, real estate economist at Florida Atlantic University. “One way to look at rents is that it’s a very high premium to pay for not having to lock yourself into property.”
Another study by Johns Burns Real Estate Consulting, a research and advisory firm, also claims that renting could be cheaper than buying when factoring in a mortgage payment and general home maintenance.
By comparing the median price of a first-time single-family home to the rental price of a single-family home, the researchers found a significant gap in price growth, in part due to rapidly rising mortgage rates. Mortgage rates have jumped over the past seven months to nearly 6% from around 3% in January.
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Home ownership of a single-family home saw 41% year-over-year price growth, compared to 10% growth for a similar rental for the entire South Florida, researchers found.
For Palm Beach County, the company found that housing costs increased 52%, while single-family home rents increased 12.5% and apartment rents increased 28.5%.
- Monthly housing payment: $3,716
- Single-family rent: $2,878
- Apartment rent: $2,414
“The cost of construction was so enormous that they [builders] pass these costs on to the home buyer. And payments for single-family homes depend on rising mortgage rates. Home prices are also going up,” said Lesley Deutch of Johns Burns Real Estate Consulting in Boca Raton.
Rents are still skyrocketing – tenants in South Florida are paying an average of 22% more than the long-term projection of what the rental price should be, according to a rental index released this week by researchers at Florida Atlantic University, Florida Golf Coast University and the University of Alabama.
Typical rent in South Florida is $2,862, while the long-term trend suggests rents should be around $2,332.59. That’s a difference of $529.41 per month.
“Florida’s rising rents only exacerbate the state’s ongoing housing crisis,” Johnson said. “The Fed’s interest rate hike will drive more people out of the housing market and keep them as renters – and as long as rental demand remains high, rental rates will almost certainly stay high. also.”
Adding to the rent-versus-buy dilemma, rising mortgage rates have already added nearly $700 to the average mortgage payment in South Florida, year-over-year, according to analysis by Zillow.