The Commercial Real Estate Alpha Site

By Jay Parsons – click here to visit Jay and his other well researched articles.

How much cheaper is it to rent an apartment versus owning a house today? Well, it’s a lot. Nearly everywhere — and not just in the high-cost coastal cities. Check out this chart showing the all-in cost of homeownership (for new homebuyers) versus the average apartment rent by metro area. Highlights:

1) California. No surprise to see massive discounts to rent in the Bay Area, Southern California (especially Orange County), etc. For those bullish on California’s rental market, this is a key data point. Nominally, that amounts to a monthly discount of topping $8k/month in San Francisco and San Jose, and close to $4k in Los Angeles and San Diego.

2) Big Sun Belt markets. The discount to rent versus buy now TOPS THE NATIONAL AVERAGE in Austin, Denver, Dallas, Raleigh, Las Vegas, Fort Worth, Houston, San Antonio, Phoenix and Nashville. It’s 50%+ cheaper to rent versus own in all of those metro area, according to data from John Burns Research & Consulting.

So, yes, that means if you move out of apartment and buy a house (even in Texas etc!) your monthly housing costs will MORE THAN DOUBLE. Nominally, that’s close to $2,000 per month in some of those spots.

Historically, the relative affordability of buying versus renting was viewed as a headwind for Sun Belt apartments (although that view was always flawed IMHO), but the math is sure different today. Barring a very sharp decline in home prices and/or mortgage rates, that gap appears sticky.

3) The Midwest (and near Midwest). This is the discount to rent is far more modest — though the narrower gap certainly hasn’t hindered apartment fundamentals of late.

The monthly discount to rent an apartment versus own a house is just 7% in Pittsburgh (or $107/month), 13% in Detroit and 20% in St. Louis. It’s also less than 30% in Memphis, Cleveland and Chicago.

I don’t see those narrower gaps as a major headwind for Midwest apartments. It’s more about the relative stability of that region.

FYI: If you don’t see your market labeled on the chart, it means it’s somewhere around the middle of the pack.

Of course, in all these regions, the actual discount will depend heavily on where within the MSA you choose to live. Remember that means and medians are just means and medians.

#housing #apartments #homeownership