After trying their hand at 2021’s competitive, increasingly pricey housing market, many would-be homebuyers are eyeing rentals with a renewed appreciation.

Across the U.S., the typical monthly rent payment is on average $600 cheaper than a mortgage on a comparable home, according to LendingTree.

Here in California, the spread is even wider, with renters saving on average:

  • $1,200 per month in San Francisco;
  • $1,100 per month in San Jose;
  • $1,000 per month in Los Angeles;
  • $900 per month in San Diego;
  • $800 per month in Sacramento; and
  • $600 per month in Riverside.

With renting so much cheaper than buying, agents and brokers who rely on a steady influx of new homebuyers may be getting nervous.

But this analysis does not take into account several factors that influence renters into becoming homebuyers, including the:

  • long-term annual savings produced by the mortgage interest deduction (MID);
  • return on investment realized through home value appreciation;
  • peace of mind provided by owning your own home; and
  • strong pull exerted by the American Dream of homeownership.

Further, this buyer-versus-rent cost comparison is always changing, a fact real estate professionals know better than most. Here in California, the last time buying a home with a mortgage was consistently cheaper than renting was in 2018-2019.

Related FARM letter:

FARM: Buy versus rent comparison analysis

The rent-or-buy comparison fluctuates

In 2021, buying with a mortgage is significantly more expensive than renting. This spread has increased over the past year due to rapidly rising home prices and decreasing rents. Both are partly thanks to moratoriums on evictions and foreclosures, which have reduced inventory of for-sale homes and decreased turnover for rentals, inducing landlords to offer rent incentives to attract new tenants.

Looking ahead, today’s large buy-versus-rent gap will shrink when the moratoriums are lifted. The foreclosure moratorium is scheduled to end at the end of July 2021, and the eviction moratorium will expire here in California at the end of September 2021.

Related page:

Moratorium Watch 2021

However, this calculation will change on an individual basis depending on:

  • interest rates;
  • the size of their down payment;
  • homeowner association (HOA) dues;
  • how long the homebuyer plans on owning the home; and
  • ownership costs, including property taxes, maintenance and homeowners insurance.

Potential homebuyers can fill out their personal Buy-Versus-Rent After-Tax Analysis to calculate the actual savings and costs buying versus renting will produce. [See RPI Form 320-4]

Finally, no amount of savings can replace the pride of ownership that comes with buying your first home. Even in times when a renter stands to lose financially, first-time homebuyers will continue to seek out homeownership, and real estate professionals will be ready to lend a hand.