Mortgage Rates Are So High That It’s Cheaper to Rent Than Buy: Report

The recent spike in mortgage rates is turning conventional wisdom on its head: Renting a home has actually become cheaper than buying one, Bloomberg reported, citing data from the real estate website Zillow. 

In August, the median rent nationally was $2,052 — $81 cheaper than the monthly mortgage payment for a typically priced home, assuming a 10% down payment and prevailing interest rates. Renting has been cheaper in only three other months since at least 2015 (in July and twice last year) and this time it was by the biggest margin, Bloomberg reported.

Now that mortgage rates are over 7.5%, the highest they’ve been in more than two decades, more and more people are locked out of homeownership. In the past, people able to afford a down payment to buy a home have typically benefited from a host of advantages — not just lower monthly payments but the opportunity to build equity, profit from price appreciation and take advantage of tax benefits. 

The gap in August was even bigger for high-cost housing markets, Bloomberg reported. For example, in San Jose, a typical home costs $1.4 million, translating to a monthly mortgage payment of $8,771, more than double the median rent of $3,386 for the area.

Mortgage applications are running at a 28-year low because borrowing costs have almost tripled in less than three years. To make matters worse, many existing homeowners are reluctant to give up lower rates by selling.