THE COST OF MOVING UP TO HOME OWNERSHIP

by Wendell Cox, New Geography, November, 2021 (excerpts)

The long-standing aspiration for home ownership has intensified during the pandemic and with the popularity of remote work. For many, it is no longer necessary to live conveniently close to work, as more and more employees are able to reduce the number of commuting days. This new hybrid model has spurred an increase in demand for housing with more space, both within the house and in the yard.

But it is particularly expensive in some states to move up to owned housing from renting. This article uses the latest Census Bureau house price and rental data (from the American Community Survey [ACS] for 2019) to compare moving up costs by state. Because of survey difficulties during the pandemic, new data will not be available until at least Autumn of 2022. The cost of moving up from renting to home ownership can be derived by the variation in the price to rent ratio. The cost of moving up is calculated by state in this article, relative to the national price to rent ratio.

It Starts with Renting

Most households seeking to own their first home are already renting. There are also substantial differences among rents among the states. The highest rents are in Hawaii (median gross rent of $1.651 monthly in 2019) and California ($1,614). The Hawaii rent is 51% above the national median gross rent of $1.097.

It might be thought that these higher rents are compensated for by higher incomes. Median household incomes are higher in Hawaii and California, but not high enough to eliminate the difference. When adjusted for the cost of living (using the Bureau of Economic Analysis Regional Price Parities, which compares rents), both Hawaii and California are about 26% higher than the national median rent. In California, annual rents are about $3,475 higher than the national average, while in Hawaii, annual rents are about $3,400 higher.

But paying these higher rents is just the beginning. In the two most expensive states for rentals, it costs more to move up to ownership and other states are also much more costly than average….

Price to Income Ratios

On average, median house prices (values) are 18.27 times higher than annualized median gross rents. The cost of moving up in Hawaii is 84.9% higher than the national average, with a price to income ratio of 33.78. In California, the cost of moving up is 60.7% as calculated from its price-rent ratio of 29.35….

Note: Metro Costs of Moving Up

Currently, the price to rent ratio among the 384 metropolitan areas varies between about nine and 40, somewhat greater than the state range of 13 to 34 (West Virginia and Hawaii).

The metros with the highest costs of moving up are San Jose and Santa Cruz, California (adjacent to San Jose), which are tied at 39.12 (Figure 4). San Francisco, also adjacent to San Jose, ranks 2nd, at 38.12.

Eight of the ten metros with the highest price to rent ratio are in coastal California. These include San Luis Obispo, CA, Santa Rosa, CA (adjacent to San Francisco), Napa, California (adjacent to San Francisco) and Salinas, CA (adjacent to San Jose). 

Two of the 10 most costly states for moving up are in Hawaii (Honolulu and Kahalui)….

read … THE COST OF MOVING UP TO HOME OWNERSHIP