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More bad news for anyone who wants to ever own a home: Home prices just went up again. The S&P CoreLogic<\/a> Case-Shiller U.S. National Home Price index rose 6% in January, data released today shows<\/a>; that\u2019s up from a 5.6% increase in the previous month, setting the fastest annual gain since 2022. \u201cOn a seasonal adjusted basis, home prices have continued to break through previous all-time highs set last year,\u201d Brian Luke, head of commodities for S&P Dow<\/a> Jones Indices, said in an accompanying statement.<\/p>\n Renting isn\u2019t necessarily affordable either, but it is cheaper than buying, and could be for years to come, according to<\/a> Capital Economics. That should show just how unaffordable buying has become<\/a> in a housing market beset by skyhigh home prices and mortgage rates that more than doubled in a short period of time. Still, \u201cas mortgage rates fall, we think the difference between the cost of buying and renting will narrow from the current all-time highs,\u201d Capital Economics\u2019 property economist, Thomas Ryan, wrote in a new housing market update. \u201cBut even by 2026, renting will remain by far the more cost-effective option.\u201d\u00a0<\/p>\n Currently, the average sales price<\/a> for homes sold in the country is $492,300; the average 30-year fixed mortgage rate<\/a> is 6.91%; and the median rent<\/a> 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\u2019s $970, or 56% higher, than the typical rent, according to Capital Economics. \u201cThat marks a historically large premium,\u201d he wrote. \u201cAnd in realty, the gap could be even larger.\u201d<\/p>\n Capital Economics recently said<\/a> 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.\u00a0<\/p>\n 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\u2019t 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. \u201cTherefore, we\u2019re forecasting that the additional monthly cost of buying a home rather than renting will still be $570 (or 47%) by end-2026,\u201d Ryan wrote.\u00a0<\/p>\n Unsurprisingly, it\u2019s 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\u2019s apartments that are considered oversupplied (if there\u2019s such a thing) and single-family homes that are undersupplied.\u00a0<\/p>\n And of course, buying and renting aren\u2019t synonymous; buying can help you build wealth, as Ryan pointed out. Capital Economics isn\u2019t the only one to identify renting as cheaper than buying. Realtor.com\u2019s newly released monthly rental report<\/a> found renting a starter home is a more affordable option than buying one in all 50 of the largest metropolitan areas in the country. \u201cThe monthly cost of buying a starter home in February 2024 was $1,027 more or 60.1% higher than the cost of renting,\u201d the report read. Separately, Capital Economics predicts home prices will rise 5% this year, and 3% next year.\u00a0<\/p>\n 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<\/a>.\u00a0<\/p>\n<\/div>\n\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n