Rent prices have dropped the most in these 5 U.S. metros. Why it’s cheaper to rent than buy in many markets

Despite broad hikes in rental prices, competition is easing in some U.S. markets as inventory grows, according to a new report from national real estate brokerage HouseCanary.

At the end of 2022, the median U.S. rent was $2,305, which was nearly 5% higher than a year earlier. But median rents ended 2022 almost 6% lower compared to the start of the year, the report shows.   

Although rent prices have cooled in some markets, others have continued to grow, including metros along the East Coast and through the industrial Midwest, HouseCanary found.   

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Renting a three-bedroom home is more affordable than owning a comparable median-priced property in most of the country, according to a recent report from Attom, a real estate data analysis firm. 

Similarly, Realtor.com’s December rental report published Thursday found the U.S. median rental price, $1,712, was nearly $800 cheaper than the monthly cost for a starter home.   

“It’s a pretty dramatic shift,” said Rick Sharga, executive vice president of market intelligence at Attom, pointing to one year ago when it was cheaper to buy than rent in 60% of the markets Attom analyzed. “You simply can’t overstate the impact that higher financing costs have had on homeownership.” 

While mortgage interest rates have recently cooled, rates more than doubled in 2022, which has never happened in one year, according to Freddie Mac. In January 2022, the average 30-year fixed rate mortgage was around 3% before jumping to over 7% in October and November.

Sharga said the mortgage rate increase made monthly mortgage payments 45% to 50% higher for a home purchase, even as home price appreciation slowed. “That probably is the single biggest factor in creating that shift,” he added.

While conditions for homebuyers may be somewhat more favorable in 2023, it’s difficult to predict whether the economy is heading for a recession, which may shift financial priorities, experts say.

“One thing to always keep in mind is that markets are constantly changing,” said Keith Gumbinger, vice president of mortgage website HSH. “If you don’t need to be in this marketplace right now, you’re probably better to hold off and watch conditions change.”

Of course, there’s more to home-buying decisions than home prices and mortgage interest rates. “The decision on whether to rent or buy is always a matter of timing,” he said. “And more importantly, it’s a matter of need.”