Your relocating employee's new home: renting versus buying

We have some interesting new information on renting in North America. This data has come to light through this WERC article: The State of Rental Housing in North America: A Tale of 3 Nations. 

"To own or to rent?" It's a question that has to be considered every time someone relocates. If someone is a homeowner in their departure location, they may not be able to buy a new home in their destination, even when provided some additional benefits. Renting may also just be preferable to some employees who want the flexibility to travel more, who want to avoid property taxes, or who just want to not worry about maintaining a property. Renters account for approximately 34% of the U.S. population, with 44 million housing units in the U.S. currently being rented.

But the biggest issue is affordability. According to Globest.com, “Renting Now Beats Buying in All Major US Cities”. They pull from Realtor.com's July Rental Report, showing a significant shift in the US housing market. Renting a starter home has become more financially advantageous than buying in all of the 50 largest metropolitan areas. The trend actually started this past February and has only become more pronounced because of elevated mortgage rates, high home prices, and a decline in rental costs. 

Consider this: 

"Last month the cost of purchasing a starter home was, on average, $1,067 higher per month than renting, representing a 61.3% premium. This financial disparity underscores the growing economic burden of homeownership in the current market. Notably, cities like Memphis, Tennessee; Birmingham, Alabama; and Pittsburgh, Pennsylvania have transitioned from buy-favoring to rent-favoring markets over the past year.

Austin, Texas, leads the list of cities where renting is most financially advantageous. The city's monthly cost of buying a starter home was $3,558, which is 144.4% more than renting, resulting in a monthly savings of $2,120 for tenants. Other cities where renting significantly outweighs buying include Seattle, Los Angeles, San Francisco, and New York."

There are a few locations where the advantages to renting are slightly shrinking. Compared to last year, some cities have seen the rent-buy cost gap narrowed by two percentage points, primarily due to an increase in affordable home listings. There has been an ever so slight easing of home prices, most noticeable in areas like San Francisco, San Jose, Denver, Washington, D.C., and Miami, where home prices have seen significant declines.

To add to the data, WERC shared a recent analysis from CBRE. The analysis shows the average monthly payment on a new U.S. apartment lease is $2,165, while the average monthly payment on a mortgage for a new home is $2,997. They anticipate the gap will continue to be an obstacle for aspiring homeowners for at least five years. Additionally, a report from PorchLight Rental & Destination Services indicates that 2024 will end up being the strongest year for new apartment construction in decades, giving renters more options and better opportunities to negotiate price and lease terms. The new supply will help keep rent increases from being at the level they have. 

The WERC article also looks at Canada and Mexico. In Canada, ongoing limited availability is causing housing and rental prices to rise. In places like Vancouver and Toronto, the rental vacancy rate is below 2%. This is contributing to consistent rent increases due to competitiveness and lack of options. According to a recent report by the Canada Mortgage & Housing Corp. the average monthly rent for a two-bedroom unit surged a record 8%, to C$1,359 (US$1,016), 

“The cost to rent homes and apartments in Mexico has likewise increased significantly, by more than 28% since early 2020, driven in part by an influx of remote workers since the pandemic”. 

In Mexico, in many locations, rents have increased 7-8% annually, but Mexico City is nearly double that. In the capital city, the rent for a high-end home in an upscale neighborhood can be upwards of 50,000 Mexican pesos (US$2,794) per month, and for an apartment, more than 40,000 pesos (US$2,235) per month.

What can help relocating employees make good decisions? The biggest elements are local expertise for the transferee and frequent housing cost updates for mobility programs. Keeping everyone educated is a key part of managing expectations and supporting the choice to rent or buy.