Cost to Own Skyrockets Above Average Rent

For decades, the American dream revolved around doing what you loved and owning a home. While millions of Americans achieved this vision, the latter part of the dream remained out of reach for many others. The Great Financial Crisis exacerbated the divide, and the recent pandemic further deepened these disparities. An analysis of historical data reveals that although rents have risen in recent years, they remain far below the skyrocketing costs of purchasing and maintaining a home.

Average hourly earnings in the U.S. grew at an average annual rate of 3.1% between 2010 and 2024, according to the Bureau of Labor Statistics. However, during the same time period, the median price of an existing single-family home rose much faster at an average annual rate of 6.7%, according to the National Association of Realtors, more than double the pace of wage growth. By the end of 2024, the median home price had reached approximately $418,000, nearly doubling from $212,000 in 2014. Over the same period, average hourly earnings rose by about 45%, which, while significant, still lagged the sharp rise in home prices. Notably, since the start of the pandemic in early 2020, median home prices have surged by nearly 47%, outpacing total wage growth over the same timeframe.

The widening gap between home prices and wages is reflected in the median home price-to-income ratio, a key measure of housing affordability that compares the median home price to median household income. To calculate this ratio, we divided the median sales price of houses (as reported by the Department of Housing and Urban Development) by the median household income (from the Census Bureau). In 2019, the ratio was 4.7, but it surged to 5.8 in 2022 before easing to 5.3 in 2023. Even with this decline, the 2023 ratio remained nearly 14% higher than pre-pandemic levels, indicating that home prices have continued to rise faster than incomes.

Rental affordability has followed a different trajectory. The median rent-to-income ratio stood at 22.2% at the end of 2019, peaked at 23.8% in 2021, and then declined to 23.3% by the end of 2023, according to RealPage Market Analytics. By the end of 2024, it had settled at 22.5%, just 30 basis points above pre-pandemic levels. This suggests that as inflation has cooled, wages have grown steadily and rents have stagnated over the past few quarters, making renting nearly as affordable as it was before the pandemic, with some variation across markets. In contrast, homeownership has not seen the same affordability improvements, as home prices remain significantly higher relative to income growth.

Few indicators illustrate the growing divide between homeownership and renting as clearly as the comparison of mortgage payments to asking rents. The chart below highlights historical mortgage payment data – including principal, interest, taxes and insurance, as calculated by Team Price Real Estate – alongside RealPage data.

Analyzing data from 2010 to 2020, asking rents were consistently more affordable than mortgage payments, with an average difference of about $390. However, since 2021, this gap has widened significantly. The disparity peaked in 2022, when the gap was at its widest ($1,946). Although average mortgage payments eased somewhat in the following years, by 2024, monthly mortgage payments ($3,525) were still nearly $1,700 higher than monthly asking rents ($1,850). To put this into perspective, in 2010, the average monthly mortgage payments were about 18% higher than the average monthly rents. By 2024, mortgage payments had soared to almost 91% above the average monthly asking rent. This growing disparity highlights how rising home prices and higher interest rates have made homeownership increasingly expensive compared to renting in recent years.

With housing shortages persisting and mortgage rates remaining high, the gap between mortgage payments and asking rents is unlikely to narrow anytime soon. At the same time, a surge in apartment construction over the past three years has added millions of rental units, keeping rents flat-to-falling many markets. As a result, while homeownership has become more expensive, renting – at least for now – remains a more accessible and affordable option for many households.