The difference in cost between buying a house and renting has reached the highest level on record.
Today, your monthly payment for buying a house is $2,800/month.
While the typical rent is $2,049.
The resulting $750 premium to buy means that many would-be first-time homebuyers are content to rent and wait out the market.
Which helps explain why the housing market in 2025 has remained sluggish, and why home values are now dropping in most states on a month-over-month basis.
1) A quicker way to understand this reality is by comparing how much the cost to buy has increased v the cost to rent over the last 5 years.
So the cost to buy has increased by more than 2x faster than the cost to rent since the pandemic started.
2) Something people often forget is that in the 2010s, and early stages of pandemic, it was actually cheaper to buy a house in America than to rent.
This was due to artificially suppressed mortgage rates in the 3-4% range, plus relatively affordable home values coming out of the last housing downturn.
This scenario propelled much of the strong homebuyer demand we saw in the U.S. from 2012-2021.
The reason no one is buying houses right now is because U.S. housing market affordability is literally at the worst level in the past 35 years.
Today, an American making median income needs to spend 39.7% to afford the monthly mortgage, tax, and insurance payment.
The long-term norm is 29%.
And during the depths of the last housing crash, it became as cheap as 22%.
For a rebound in the housing market to take place, this Mortgage Payment/Income Ratio needs to get cheaper, probably closer to 30%.
To get there, home values need to drop 15%, and mortgage rates need to drop 1.5%.
1) I don't think people realize just how far off we are from buyers returning to the market.
It's not a matter of a rate cut or two.
It's a matter of home values correcting significantly, and some type of mega Fed rate cut and/or recession bringing Mortgage Rates into low 5% range.
2) To see my point, look at this matrix showing the U.S. Mortgage Payment / Income Ratio at different levels of home price correction and mortgage rates.
Today's affordability rate is 39.8%.
To get to the long-term norm, around 30%, it would facilitate a 15% decline in home values and mortgage rates dropping to 5.3%.
And that simply gets us back to normal affordability.
Only other times it was this high: 2022, 2008, 1991.
All are either recessionary scenarios or near recessions.
This is ultimately good news for homebuyers. It means cheaper prices are around the corner. But potentially bad news for builders, and those who bought near the peak of the bubble.
There could also be an economic spillover in terms of construction job losses and downturns in regional economies most exposed to home building.
1) And this is more a story about the South in the U.S. than anywhere else in the U.S.
In the South, there are now 311,000 new builder homes for sale.
That's the highest level on record, even eclipsing the heights of the 2006-07 bubble.
2) The graph for this is quite shocking.
Many people I speak to in the housing market still think there's a "supply shortage". And that "we're not building enough".
But the data in the South, and parts of the western U.S., suggests we could be in a home-building bubble reminiscent to what we saw in the mid-2000s.
No one is buying new homes that are under construction or permitted.
Months of supply for both is sitting between 15-20 months, which is basically the highest on record.
Meanwhile - completed spec houses have a decent sales pace of 3.6 months.
Meaning extremely weak demand in the future for builders. Any short-term success on sales is simply being driven by having lots of completed inventory and giving mortgage rates buy downs/cutting prices on completed homes.
The long-term outlook, measured by sales pace for Under Construction/Permitted, says demand is fundamentally weak.
And that the Housing market will continue to get cheaper. (which is good news for buyers)
1) Consider that the Months of Supply for homes Permitted but not Started is literally the highest level on record.
Meaning basically no one right now is willing to enter into a sales contract for a home to be built.
That says a lot about the current state of demand.
2) Meanwhile - Months of Supply on houses Under Construction (14.8) is at 2nd highest level on record behind only the 2008 housing bust.
Back then, months of supply for under-construction houses went to 18.1.
A further indication of how weak demand is right now.