RALEIGH – Is it cheaper to buy or rent in the Triangle?
According to a new study, renting a “starter” home or a similarly-sized apartment is more affordable on a monthly basis than purchasing a similar home. The report noted these are studio, one-bedroom or two-bedroom properties.
Despite soaring rent prices and low vacancy rates, for those seeking new housing options, renting may be more affordable than buying in the Raleigh area, an analysis of real estate market data by a team of economists at Realtor.com concluded.
The analysis includes property in Franklin County, Johnston County and Wake County, Nicolas Bedo, an economic research analyst at Realtor.com and an author of the study, told WRAL TechWire in an interview.
How much more affordable is renting compared to buying?
The study concluded that the gap between the cost of renting in the Raleigh real estate market and buying a comparable property is $159 a month, or more than $1,900 a year. That’s before any closing costs are factored into the equation.
The results show that it is 11% more affordable.
Cheaper… for now
The real estate market is changing, and changing quickly in the Triangle. The rate of change isn’t the same between increasing rent prices and increasing home sale prices, though. In this segment, which Bedo called “starter homes,” the appreciation rate is far lower than the overall for-sale market in the Triangle.
So, while there’s a current difference in the monthly cash outflow of renting a starter-sized home compared to purchasing a comparable sized property using a 5% down payment and factoring in insurance and taxes, the market could change in the future, said Bedo.
“That gap is shrinking,” said Bedo. “While the monthly cost of buying a starter home is up just 5.5% over last year, rents for comparably-size homes have increased by 16.4%.”
Much of the increase in the rental market has come in 2021, a recent analysis from Apartment List shows.
According to the data shared with WRAL TechWire by Rob Warnock, a researcher at Apartment List, in the city of Raleigh, the median rent price is up 15% since January 2021, and it is growing at a rate that Warnock called “significantly faster” than during pre-pandemic years.
“A big reason is vacant apartments in Raleigh are becoming increasingly scarce,” said Warnock. “While rents are up 15%, the local vacancy rate has fallen to less than 4%.”
Vacancy rates aren’t just low for apartments. According to data from WalletHub, which recently ranked three Triangle cities among the most competitive, hottest real estate markets in the country, the vacancy rate in Raleigh is 9.43% and in Cary is 5.57%. But the data analyzed by WalletHub was calculated as vacant housing units divided by total housing units, and the source data came from the U.S. Census, from a 2019 data set, a spokesperson for WalletHub confirmed to WRAL TechWire.
Warnock said the vacancy rate may be lower, now, than the 4% tracked in the Apartment List data set, and the vacancy rate calculated by using the 2019 Census housing data.
“The two major categories of housing that we are less likely to capture in our data, owned homes and smaller-complex rentals, both tend to have lower vacancy rates than the larger-complex rentals that make up the majority of our inventory,” said Warnock. “Especially owned homes, typically they comprise a majority of total units in a market and their vacancy rates are very low.”
Warnock estimated that the typical vacancy rate of owned homes would be under 1%.
“There are a few factors that have kept the local rental market hot,” said Warnock.
Competition to secure a place to live is intense, he noted, and the Triangle has below-average unemployment rates, with the local economy less-severely disrupted by the COVID-19 pandemic.
The Triangle is also attractive to a lot more workers who may now be considering remote-work environments, particularly in the technology industry, Warnock said. He noted that a recent analysis from the company ranked Raleigh as the fourth best city for remote workers.
“If mortgage rates remain low, the rent versus buy equation will be much more balanced in the near future,” said Bedo.