It might be cheaper to rent a property in 2023; higher interest rates and a softer rental market explain why

The Economist graph, from
U.S. government data

For the first time in decades, renting a home or apartment in 2023 was cheaper than buying one. "The median rent in America's 50 largest metropolitan areas costs about $1,750, which is down nearly $30 from a year ago, according to new data from realtor.com, and it was the fifth such consecutive drop for up to two-bedroom homes," reports Omar Mohammed of Newsweek. "The rental market is seeing a softening partly due to more homes available for renters who are driving up the demand."

Historically, Americans have enjoyed mortgage payments that are less expensive than paying rent, but over the past two years, interest rates have soared "as the Federal Reserve has hiked rates to their highest levels in two decades to battle inflation, which spiked to a 40-year high at one point," Mohammed explains. "The jump in rates has pushed the borrowing costs for homes, making the prospect of buying a home unaffordable for Americans."

Looking at the dynamic change, The Economist reports, "Between 2011 and 2020, the monthly mortgage payment on a typical home was 12% lower than the rental for a similar property (assuming a deposit of 13%, the current national average). A steady rise in home values, worth roughly 7% a year over the past decade, also ensured that buyers built equity in their homes. . . . But now the choice between buying and renting looks different."

Mohammed writes: "Some housing economists are begging the Fed not to raise rates again to give some relief to the sector that counts for 16% of U.S. economic activity."