Rents-Mortgages-Income and Housing by State — Buying is Better Than You Might Think

For most people the housing question is either to rent or buy.   Buying is not for everyone, however.  It has material transactions costs, typically requires a down payment, pre-requisite for relatively good credit and an income net of existing debt service to pay the monthly principle and interest along with property taxes, insurance, homeowner or condo association fees and ongoing maintenance.

The following table shows median rents for the U.S. and all 50-states as of June 2019 as calculated by  Apartment List.   Included are rents for one- and two-bedroom apartments and the percentage change in the latest 12-months.  Apartment List has a scientific approach to estimating median rents and respective changes over time, using a methodology similar to the Case-Shiller Home Price Index.  They use identical-unit analysis that compares the same units over time, not just an average or median of what is available at that point.  I had never seen apartment rentals data by state prior to these data series.

Housing costs are the major economic hurdle for most Americans today as median prices jumped from $172,400 in 2010 to $247,200 in 2017, a gain of 43.4 percent.  [The 2018 median household income estimate is not yet available, hence the 2017 metric.]  In that same period, median household income rose 24.1 percent.   Muting the divergence, fortunately has been the drop in the conventional 30-year fixed-rate mortgage interest rate from an average 4.69 percent in 2010 (per Freddie Mac’s Primary Mortgage Market Survey) to 3.75 percent the week ending July 3, 2019.

For the majority today, despite rising housing costs, the home purchase decision warrants a focused analytical look.   Consider the following data for the United States:

$1,190 2 Bedroom Median Monthly Rent Up 1.6 percent in the 12-months ending June 2019

3.75 Percent current Conventional 30-Year Fixed-Rate Mortgage interest rate

The $1,190 rent at the 3.75 percent rate as of July 3, 2019 would service a mortgage loan balance of $256,955 – principle and interest only.   The latest existing home median price was $277,700 as of May 2019.   Assuming a 20 percent down payment ($55,540), the required loan would be $221,160.   Not everyone has the $55,540 down payment nor do they have the ability to pay the added property taxes, insurance, maintenance and other expenses.   If they did, and they planned to remain in the home at least three years, buying wins hands down.

The next table shows data by state allowing for a quick visual buy-rent comparison.  In Alabama, for example, the median two-bedroom rent would service $177,700 of debt (not including taxes, insurance, maintenance or homeowners-condo fees.   In 2017 the median priced home in the state was $141,300, so the ability to service almost $178,000 in debt gives the nod to owning.  The Ownership Advantage shows how much more debt the monthly rent payment will service when compared to the median price.  Hence in Alabama, not including the down payment or other costs, ownership has a $36,000 advantage.  In Colorado, on the other hand, the typical rent payment will not service a loan necessary to purchase the median-priced home – hence the decision to rent.  The Mile-High State has a negative Ownership Advantage of $62,800.

While these state data are informative, people live in a specific city, town or area, so even the state metrics may lead to an incorrect buy-or-rent answer.   As usual, I invoke the TINSTAANREM axiom — There Is No Such Thing As A National Real Estate Market, nor is there such a thing as typical costs of housing, rents, taxes and insurance.

While this analysis is over-simplified by ignoring many of the monthly costs of ownership, it does show the states where there are clear answers each way.

To access the full Apartment List report click


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