Low mortgage rates have kept homeownership less expensive than renting in all 100 large metros
Even though asking home prices rose 7.0% in the last year, outpacing rent increases of 3.2%, the gap between buying and renting has narrowed only slightly. One year ago, buying was 46% cheaper than renting. Today’s it’s 44% cheaper to buy versus rent. In fact, homeownership is cheaper than renting in all of America’s 100 largest metros. That’s because falling mortgage rates have kept buying almost as affordable, relative to renting, as it was last year. According to Freddie Mac, between February 2012 and February 2013 the 30-year fixed rate dropped from 3.9% to 3.5%, though rates have been rising in March.
To determine whether renting or buying a home costs less, we do the following:
To compare the costs of owning and renting, we assume people will get a 3.5% mortgage rate, reside in the 25% tax bracket and itemize their federal tax deductions, and will stay in their home for seven years. We also assume buyers get a 30-year fixed-rate mortgage and put 20% down. Under all of these assumptions, buying is 44% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period. We also look at alternative scenarios by changing the mortgage rate, the income tax bracket for tax deductions, and the number of years one stays in the home. Our interactive map shows how the math changes under alternative assumptions. And if you’re interested, check out our detailed methodology which explains our entire approach, step by step.
Savings from Buying Versus Renting Smallest in California and New York, Biggest in the Midwest
Buying a home is cheaper than renting in all of the 100 largest metro areas, but buying ranges from 19% cheaper than renting in San Francisco to 70% cheaper than renting in Detroit. The financial benefit of buying instead of renting is narrowest in San Francisco, Honolulu, San Jose, and New York.
Over the past year, the gap between renting and buying has narrowed most in the Bay Area. One year ago, buying was 35% cheaper than renting in San Francisco and 38% cheaper than renting in San Jose; now, the difference is 19% and 24%, respectively. These metros have seen strong price increases year-over-year. In contrast, the gap didn’t narrow at all in New York, where buying remains 26% cheaper than renting, both now and a year ago. On Long Island, the difference actually widened from 34% one year ago to 36% today. New York, Long Island, and other Northeastern metros have seen more modest price rebounds over the past year, despite rising rents:
Where Buying a Home is a Tougher Call
Cost of Buying vs. Renting (%), 2013
Cost of Buying vs. Renting (%), 2012
|1||San Francisco, CA||
|3||San Jose, CA||
|4||New York, NY-NJ||
|6||Orange County, CA||
|7||San Diego, CA||
|8||Los Angeles, CA||
|9||Long Island, NY||
|10||Ventura County, CA||
Note: Negative numbers indicate that buying costs less than renting. For example, buying a home in San Francisco is 19% cheaper than renting in 2013. Trulia’s rent vs. buy calculation assumes a 3.5% 30-year fixed-rate mortgage, 20% down, itemizing tax deductions at the 25% bracket, and 7 years in the home.0 comments
You can save hundreds of dollars a month by buying a home instead of renting – especially if you can get today’s low mortgage rates, itemize your tax deductions and plan to live there for 7 years.
The most important housing decision that most consumers face is whether to rent or to buy. So to help them with this decision, we took a look at the key market factors affecting the cost of homeownership. First off, asking home prices have started to rebound and have risen by 2.3% year over year in August (3.8% excluding foreclosures); however, rents have risen more (4.7%). This means that prices are lower relative to rents than they were a year ago. But more importantly, mortgage rates have fallen: the best rates this summer have been around 3.5%, while last summer rates were closer to 4.5%. Based on asking prices and rents during the summer of 2012, buying is now 45% cheaper than renting in the 100 largest U.S. metros, on average – that’s a savings of $771 a month. If you plan to stay in a home for 7 years, which is the average time that Americans traditionally live in a home before moving again, it is more affordable to buy than to rent in ALL of the 100 largest metros in the U.S.0 comments
Trulia's Latest Study Reveals Buying a Home Trumps Renting in 98 out of the 100 Largest Metros
Since the housing bubble burst, it seems like everyone and their mother can’t stop talking about what a great time it is right now to buy a home, but how good is it really? After years of seeing home prices drop like flies and rental markets tightening up better than pair of Spanx, it’s safe to say that homeownership is very affordable almost everywhere. In fact, it is now cheaper to buy than to rent in 98 of the 100 most populous metros – including (shocker!) pricey places to live like New York, Los Angeles and Boston.
Says who you ask? Our Trulia’s Winter 2012 Rent vs Buy Index – that’s who! To give you a little bit of background, this Index is what we use to figure out whether buying a home or renting in a given metro is easier on the pocketbook. To do this, we look at asking prices for rentals and homes for-sale on Trulia.com while also factoring other costs like taxes, insurance and maintenance, etc.
Just see for yourself. After ranking all the metros (marked as dots in the chart below) in order of where buying is most expensive relative to renting, notice that the two metros at the top of the list —Honolulu and San Francisco — are no where close to being orange, let alone being in the red (read: renting is cheaper relative to buying). At best, they are a nice mustard yellow, which means that the asking price between renting and buying isn’t all that different. Instead, what really matters if you’re only doing a basic cost comparison is (1) your tax bracket and whether you can benefit from the mortgage interest deduction and (2) how long you actually plan to live in the house.
Start Spreading The News, I’m Leaving NYC For The Suburbs Today
Truth be told, it won’t surprise anyone to say that you need to be making some serious bank in order to be a Manhattan homeowner. Housing crisis or no housing crisis, it’s still going to be a really expensive place to live compared to pretty much anywhere else in the U.S. of A. However, if you can let go of Manhattan city living (like Miranda in “Sex and the City” did), then you might be pleasantly surprised to know that buying a home is definitely doable. You just got to look even further than Brooklyn and Staten Island (priced-out Manhattanites have bid up home values in many neighborhoods…boo! hiss!). How far? Think Queens, the Bronx and other nearby suburban counties.
|New York City Area|
|Borough or County||Price:Rent Ratio|
|Bergen, NJ (Hackensack)||12.5|
|Hudson, NJ (Jersey City)||12.1|
|Nassau, NY (Long Island)||11.8|
NOTE: The lists above rank the major metros where renting a home is most expensive relative to buying, and vice-versa. Price-to-rent ratios that are 15 and under indicate buying is less expensive than renting, while ratios that are 20 or higher indicate renting is less expensive than buying. Between 15 and 20, the rent-versus-buy calculation depends on tax deductions and other personal circumstances.
Left My Heart In San Francisco…As I Move To The East Bay
When it comes to buying a home in the SF Bay Area, you’re going to have to pay a pretty penny as compared to renting to do so in San Francisco, the Peninsula (San Mateo County) and in the South Bay (Santa Clara County). You’re more likely to get a better deal once you cross the Bay Bridge and head to the East Bay (Alameda County and Contra Costa County). That’s because there’s been more empty homes and foreclosures on that side of the bay.
|San Francisco Bay Area|
|Santa Clara (San Jose)||14.5|
Buying Beats Renting 99 Miles From LA, But Not Always
Generally speaking, homeownership in SoCal gets pricier as you move away from the coast towards the desert, but this “rule” is by no means set in stone. There are a couple of big exceptions: Pasadena and the San Gabriel Valley. These two real estate markets are really far from the beach, but are crazy expensive places to buy a home as compared to renting. Heh, go figure.
|Area Code||Price:Rent Ratio|
|Westside LA / Beaches /Coast (310 / 424)||15.8|
|Pasadena / San Gabriel Valley (626)||15.8|
|Orange County South (949)||14.4|
|Central Los Angeles (213 / 323)||13.4|
|Orange County North (714 / 657)||12.8|
|Long Beach (562)||11.9|
|San Fernando Valley (818 / 747)||11.7|
|San Bernardino (909)||10.2|
If You’re Living in Chicago, It’s Cheaper to Buy vs. Rent
No matter how you slice and dice it, being a homeowner in Chicago is much more affordable than being a renter. Even in the heart of the windy city (the Loop and Near North Side), buying is relatively cheaper than buying than in many suburbs of New York, San Francisco and Los Angeles.
|Area Code||Price:Rent Ratio|
|Loop and Near North Side (312)||11.4|
|Chicago except downtown (773)||8.0|
|North/Northwest Suburbs (847 / 224)||7.7|
|Western Suburbs (630 / 331)||7.5|
|South Suburbs (708)||5.0|
To check out the all the findings from the report, check out the Slideshare deck below.0 comments
Buying a Home Beats Renting in 74% of America's 50 Biggest Cities – Is This True in Your Hometown?
So for the third time this year, we pitted the cost of renting against the cost of buying a two-bedroom apartment, condo or townhouse to see who would win in a fair fight. Without rubbing it in too much, let’s just say homeownership was awarded the KO victory (for those of you at home who don’t watch boxing or mixed martial arts, ‘KO’ stands for ‘knockout’ which means they won with a single punch) in 3 out of 4 major U.S. cities.
Oh Snap! Miami’s Heating Up
Just to be perfectly clear, we’re not talking about the Miami Heat and King James (that would be LeBron James for our readers who aren’t basketball fans). What we are talking about is the beginnings of an interesting shift that’s happening to the housing market in the city of Miami.
Homeownership is cheaper than renting in four out of five major US cities - what's the better option where you live?
Falling prices and record-low mortgage rates sure makes buying a home pretty tempting, but is it actually cheaper than renting? To find out, we did an apples-to-apples comparison between the cost of renting versus buying a two-bedroom apartment, condo or townhouse. The verdict? Hands down, buying is a “winning” choice in nearly 80% of all major U.S. cities.
Foreclosure Hotspots = Real Estate Clearance Sale
Extreme couponing won’t work on real estate, but why would you even bother when buying a home today is dirt cheap, especially in cities where bank-owned properties and short-sales have flooded the housing market.