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Housing: Where prices to buy or rent a home are rising the fastest

Realtor.com Chief Economist Danielle Hale joins Yahoo Finance Live to discuss the latest national home pricing index data, inflation in renting prices for both landlords and renters, mortgage rents in the pandemic, and compares metro area costs for homebuyers.

Video Transcript

AKIKO FUJITA: Well, real estate in focus today with new data from S&P Case-Shiller National Home Price Index finding home price growth in the US remained constant in December. S&P posted an 18.8% gain that is unchanged from November, but year over year, changes have seen record increases.

Let's bring in Danielle Hale, Realtor.com Chief Economist. Danielle, just talk me through what you're seeing right now. Are things going to start cooling down? Are we seeing this huge rush on low inventory, the fear of rising rates? Or are you seeing that things could remain heated for a while even with those rates going up?

DANIELLE HALE: Yeah, so what we saw in the Case-Shiller Index today is that home prices continue to increase. And if we look at where they're increasing, Sunbelt metro has topped the list. But even in markets at the bottom of Case-Shiller's top 20, we're still seeing home prices advance at double digit pace. So home prices are going up pretty much everywhere. The pace hasn't yet slowed down, but this is December data from Case-Shiller.

And remember, mortgage rates were still quite low in December. They've moved up pretty significantly to start the year so far. In fact, they're almost a whole percentage point higher than where they were at the end of December. And so that's going to significantly affect how much homebuyers can afford when they're putting offers in on homes in this real estate market.

BRIAN CHEUNG: Hey, Danielle. It's Brian Cheung here. I really enjoy the research that you're doing with regards to, instead of looking just at the home price appreciation, kind of evaluating whether or not, in some cases, it might be better for people to rent versus buying a home. And the research that you have over at realtor.com notes that in 26 of the 50 largest metros, it is actually a better financial choice to go off with buying a starter home, as opposed to renting. Tell us a little bit more about where those metro areas are and how the numbers break out.

DANIELLE HALE: Yeah, I think that's probably a shock to most people since we've been talking so much about rising prices. But rising rents are pretty common across the board. Nationwide, rents are up almost 20% on a year over year basis. So they're growing faster than the pace of home prices. And that means in some markets, not in all, but in just over half of the 50 largest markets, your monthly costs are going to be lower as a buyer than they are as a renter.

So in those markets, if you are in the market and thinking about making a move, it might make sense to consider buying over renting. Now we've got the most expensive areas up there right now. So those are markets where renting makes much more sense than buying because rents are relatively affordable compared to the price of homes and what you're going to pay on a monthly basis.

But in the South and Midwestern markets, those are areas where we tend to see buying make more financial sense on a month-to-month basis. And so areas like Birmingham, Cleveland, Pittsburgh, you're actually going to pay less per month if you buy versus if you rent. Now that's assuming that you can find a home and win an offer on a home and that you have enough to put a down payment down and actually finance the home purchase.

AKIKO FUJITA: I mean, Danielle, we've seen occupancy rates tick higher in some of those key metro areas that you pointed to. If we're talking about purchasing a home, and we're seeing the rates pushing higher, potential pullback-- again, potential-- depends on the market-- does that suggest that rent increases are going to outpace those home purchases and monthly mortgage rates as we move forward or further into the year?

DANIELLE HALE: Yeah, that is what we expect. So rents are going up because in some cases, they're making up for lost time. During the pandemic, rents didn't decline nationwide, but they did grow much slower than we would normally expect. And some markets did, in fact, see rents decline.

So rents are making up for lost time. Inflation is pushing up costs for landlords, so they're dealing with higher maintenance upkeep, utilities costs, property taxes, and they're pushing that burden into the rental price. And then the third thing is that rental vacancy is at an all-time low. And so that means in many markets, landlords don't have to compete for renters. It's renters that have to compete for the landlords' attention to get the unit. And so that is a recipe for continued price increases.

Now I will say we do expect the pace of rent growth to slow. So we're still going to see rents grow. But our expectation is that we'll see them average about 7% this year, which is still about twice what you would expect in a normal healthy market.

BRIAN CHEUNG: Yeah, Danielle, that's a good distinction that you bring up there that just because, in some cases, it might be better to buy, it's not because home prices are going down. Where are specific markets where you're seeing a really hot housing market that is really expensive to rent and also really expensive to own a home? I know of one town in Texas, Hook 'em Horns, that's also feeling that heat there.

DANIELLE HALE: Yeah, Austin is the top of many of our lists lately, and that's because it's just getting so much attention from buyers and renters, anyone looking to relocate from out of town. You've got the no income tax that Texas is famous for that's drawing in a lot of people. You've got a growing developing tech industry in the Austin market. Realtor.com has an office in the Austin area. So lots of tech companies located there are drawing workers in.

And especially those who have flexibility, who may have been in the Bay Area and may not want to stay in that area anymore, they can find great affordability in Austin, relative to the cost of homes in the Bay Area, whether we're talking buying or rent. And they can still be in a great tech market. And so even though prices are going up, they're still relatively affordable compared to those California prices.

BRIAN CHEUNG: Yeah, Austin, Texas essentially the new Silicon Valley. Thanks so much for breaking all that down for us. Danielle Hale, realtor.com chief economist.