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Some Los Angeles-area renters may feel a secret shame of not owning their homes, but maybe they should be bragging. Right now, renting is a much better deal.
People in the Los Angeles-Long Beach-Anaheim metropolitan area looking to get into a smaller home on average would save more than $2,000 a month by renting rather than buying, according to the latest estimates from Realtor.com. That’s a lot of potential savings to invest and hold until interest rates and home prices cool.
The supply of fresh rental units, which make up the bulk of new housing in Los Angeles, is petering out despite robust demand.
Last month, for homes with up to two bedrooms, the gap between the median rental cost per month and the monthly cost of buying was the highest in the 50 largest metropolitan areas in the U.S., according to the real estate listing and data company’s Monday report.
The median cost to buy in the Los Angeles area was $4,836 per month, while the median rent for the same size homes was $2,787, a $2,049 difference.
The average gap in the U.S. was $858. In New York, it was $1,823.
Jiayi Xu, a senior economist at Realtor.com, said starting with a rental may help those still hoping to buy a home in the long run.
“The monthly savings, like the $2,000 renters enjoy relative to buying [in L.A.], can be put directly towards the down payment, which could create a faster path to homeownership,” she said.
The number of condominiums sold in Los Angeles County in January and February was the lowest it’s been since 2005.
Developers say there is a limited supply of new homes because the costs of land, labor, taxes and fees, as well as regulations connected to construction, make it difficult to profit from projects in and around L.A.
The gap favoring renting has persisted for years, according to Realtor.com data. Nationwide, there has been 36 consecutive months of annual rent decreases, even as mortgage rates and home prices have remained stubbornly high in many metropolitan areas.
Indeed, condominium prices have been cooling in L.A., but people continue to prefer to rent. Condominium buying recently fell to a 20-year low as potential buyers have been discouraged by high interest rates and building fees.
The advantages of renting could be good news for many people in L.A. More than 60% of occupied housing units in L.A. County are occupied by renters.