Renting is still cheaper than owning a home in the U.S., but housing costs have outpaced incomes for decades, and high mortgage rates are squeezing buyers, according to J.P. Morgan, as homeownership among those under 35 falls to its lowest in nine years.
Renting Is Cheaper, But Not Cheap
On a monthly cash-flow basis, renting remains cheaper than owning in most large U.S. metro areas, the brokerage’s analyst Bennett Parrish said on the latest episode of the bank’s ‘All into Account’ global cross-asset strategy podcast, pointing to elevated price-to-rent ratios
But cheaper is not the same as affordable.
“Affordability is fundamentally about housing costs relative to incomes, and this is where the picture is most troubling,” Parrish added.
Housing costs have outpaced income gains for much of the past 25 years.
Homeownership among those under 35 has fallen from 39% in early 2022 to a nine-year low of 35%, while older cohorts have been somewhat insulated.
“US housing affordability remains near its worst level since the Global Financial Crisis, with a market that’s effectively ‘frozen,'” the firm stated in its note.
Why Buying Costs More
Housing affordability remains near its worst level since the global financial crisis, J.P. Morgan’s John Sim said on the podcast.
The 10-year Treasury yield, a key benchmark for mortgage rates, climbed to about 5.32% this week, its highest level since 2002. The average U.S. 30-year fixed mortgage rate has meanwhile risen to 7.4%, according to Freddie Mac.
The Federal Reserve raised interest rates by 25 basis points last month, and minutes released Wednesday showed most policymakers see another hike as likely appropriate by year-end.
The Personal Consumption Expenditures (PCE) price index rose 3.4% year over year in August, unchanged from July, while the index increased 0.3% month over month in August.
Rising insurance and property taxes add to the burden.
J.P. Morgan sees mortgage rates falling to the mid-to-low 6% range at some point in 2027.
Apartment Supply May Be Easing
For renters, supply may offer some relief.
Analyst Joyce Chang said that the multifamily sector has been working through oversupply after a Sunbelt construction wave, encouraged by low borrowing costs and strong population growth.
Peter Schiff Says Prices Would Need to Fall Nearly 50%
Investor Peter Schiff warned Wednesday that the 10-year Treasury yields will “soon surpass 5.5%,” potentially pushing mortgage rates above 8%.
He added that a buyer putting 10% down on a $500,000 home pays about $1,900 a month at a 3% rate, but more than $3,600 at 9%, so prices would need to fall nearly 50% to restore the old payment.
Price Action: The iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF) closed 0.38% higher on Thursday at $89.45 and rose 0.06% to $89.50 in early premarket trading on Friday. The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) was up 0.95% to close at $77.87, but fell 0.14% to $77.76 in early hours.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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