Americans still face a significant affordability gap between buying a home and renting, but the difference has narrowed to its lowest level in three years, according to a Redfin report.
To afford a typical home for sale, Americans must earn about $111,000 per year, compared with roughly $76,000 to afford a typical rental — a 46.3% gap. That's down from $116,000 for a home versus $74,464 for rent last year, a 55.6% gap and from a 66.2% premium in late 2023, when buyers needed $120,609 to purchase vs. $72,572 to rent, Redfin found.
Even as the gap narrows, the income required to buy a home remains higher than what the typical American earns. The median U.S. household income is an estimated $86,185, roughly $25,000 below the amount needed to afford a home. However, the gap is shrinking, said Redfin. Median income rose 4% from 2024 to 2025, while the income needed to purchase a home fell.
On the rental side, the typical household earns about $10,000 more than is needed to afford a typical rental, so tenants remain relatively well-positioned despite rising rents.
The shrinking gap reflects declining home-buying costs over the past year, while rental costs have increased. Buyers now have more negotiating power as sellers outnumber buyers, Redfin said.
Median home-sale prices are $426,747, slightly higher than last year, but average mortgage rates have dropped to about 6.1% from nearly 7% in 2024, lowering the median monthly mortgage payment to roughly $2,675 from $2,800 a year ago. The annual income needed to buy a home fell 4% year-over- year in December.
Rental costs have risen, with median asking rent nationwide at $1,901, up 2.1% year-over-year and just $15 below August's all-time high. Wage growth of 3.7% year-over-year has slightly improved rental affordability, according to Redfin.
"Many Americans have been hesitant to jump from renting to buying due to high homeownership costs, but the recent drop in mortgage rates and rise in homebuyer negotiating power may help some take the leap," Grishma Bhattarai, a Redfin economist, said.
"We expect homebuying affordability to gradually improve in the coming year as mortgage rates stay closer to 6% than 7%, home-price growth slows and wages rise faster than housing costs."
Among the most expensive metros, San Jose tops the list. Buyers there need to earn $374,241 per year, 175% more than required to rent. San Francisco comes in at $291,256 (138% more) and Seattle at $192,503 (120% more).
In these markets, renting is still pricey, but far less expensive than buying, according to Redfin. For example, in San Jose, the average monthly mortgage payment exceeds $9,000, while typical rent is $3,399.
The smallest premiums are in markets with median home prices under $300,000, Redfin found. In Pittsburgh, buyers must earn $66,168, just 13.1% more than renters. New Orleans requires $74,566 (18.4% more) and Cleveland $66,725 (20.8% more).
Redfin noted that the rent-versus-buy gap is shrinking in nearly every major metro, except in Detroit, where the premium rose to 28.2% from 27% a year ago. Buyers there must earn $74,912 annually to afford a typical home.
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