Renting isn’t necessarily affordable either, but it is cheaper than buying, and could be for years to come, according to Capital Economics. That should show just how unaffordable buying has become in a housing market beset by sky-high home prices and mortgage rates that more than doubled in a short period of time. Still, “as mortgage rates fall, we think the difference between the cost of buying and renting will narrow from the current all-time highs,” Capital Economics’ property economist, Thomas Ryan, wrote in a new housing market update. “But even by 2026, renting will remain by far the more cost-effective option.” 

Currently, the average sales price for homes sold in the country is $492,300; the average 30-year fixed mortgage rate is 6.91%; and the median rent for all bedrooms and property types is $2,055. Conversely, in the 2010s, the monthly cost of buying and renting were pretty close, but that changed a few years ago, when the cost of buying a home soared with the pandemic housing boom, Ryan wrote. The monthly payment for an average home with an 80% loan-to-value ratio mortgage is about $2,700, and that’s $970, or 56% higher, than the typical rent, according to Capital Economics. “That marks a historically large premium,” he wrote. “And in realty, the gap could be even larger.”

Capital Economics recently said the national average house price has risen almost 50% since the start of the pandemic. And in this note, Ryan wrote that rent as a share of disposable income among 25- to 34-year-olds was 40.5% as of the fourth quarter of last year, dipping from a peak of 41.6%. So clearly, both rents and home prices are costly. 

Still, despite the fact that the firm expects mortgage rates to fall from here, and borrowing costs to lessen, renting will still be cheaper. For one, Capital Economics doesn’t see mortgage rates falling below 6% by the end of 2026, and at the same time, it expects home prices to continue their upward trend, while rents stay muted. “Therefore, we’re forecasting that the additional monthly cost of buying a home rather than renting will still be $570 (or 47%) by end-2026,” Ryan wrote. 

Unsurprisingly, it’s supply that is keeping rents subdued, and supply that is pushing home prices up. The only difference is the type of supply, multifamily versus single-family. And it’s apartments that are considered oversupplied (if there’s such a thing) and single-family homes that are undersupplied. 

And of course, buying and renting aren’t synonymous; buying can help you build wealth, as Ryan pointed out. Capital Economics isn’t the only one to identify renting as cheaper than buying. Realtor.com’s newly released monthly rental report found renting a starter home is a more affordable option than buying one in all 50 of the largest metropolitan areas in the country. “The monthly cost of buying a starter home in February 2024 was $1,027 more or 60.1% higher than the cost of renting,” the report read. Separately, Capital Economics predicts home prices will rise 5% this year, and 3% next year. 

Only time will tell where they all go from here, but we do know that going from renting to owning is becoming harder and harder.