Austin leads in out-of-reach starter homes

Gap between costs of buyers and renters grows

Single family homes in Austin Chief Economist Danielle Hale (Illustration by The Real Deal with Getty)

First-time buyers looking for homes in Austin might consider renting instead. Texas’ capital city outranks every large U.S. metro when it comes to monthly mortgage costs for starter homes compared to the city’s average rent price.

In the Austin-Round Rock market, starter-home buyers now pay almost double what their renting counterparts shell out per month, according to a report, with a 98 percent gap between the average monthly costs.

Median June rent for the metro area was $1,864, versus the $3,685 median monthly cost for buying a starter home. That’s a year-over-year median increase of nearly 20 percent in rent and 38 percent jump in median monthly starter-home mortgage payments.

To determine the monthly cost of a starter home — a home first-time buyers can afford and plan to trade up down the road — the study looked at the median asking price of residences ranging from studios to two-bedrooms. It added a 7 percent down-payment cost (based on the national average since 2018) and used the average of Freddie Mac’s 30-year fixed mortgage rates for June to determine a monthly mortgage payment. It also included average costs of HOA fees, taxes and homeowner’s insurance for each metro. It compared these totals to median rent in individual cities, focusing on the dollar amount of the gap.

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Concluding that renting is cheaper may seem obvious, this is not always the case. The study found that there are 12 large metros where monthly payments for first-time buyers is still cheaper than renting. Pittsburgh, Pennsylvania and Birmingham, Alabama topped the list in that regard.

Austin is relatively new to rent-favored conditions, having flipped from a buyer-favored market in 2018, alongside 22 other major U.S. metros whose housing markets transformed after 2010.

This doesn’t mean Austin area rents aren’t climbing. Quite the contrary, rent for single-family homes increased 13 percent between May and June 2022 and was up 11 percent since May 2021, according to a recent CoreLogic report.

Though it’s unlikely to flip back to a buyer-favored scenario, even for starter homes, the metro area saw a 20 percent decline in home sales and a doubling of inventory in June. Last month’s median home price fell from its all-time high of $550,000 down to $537,475.

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