16 Cities Where it’s Cheaper to Buy than it is to Rent

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January is a natural time to take stock of your financial life, and to dream big dreams about 2018. Could this be the year you make the leap to homeownership? Or will you make a big change and trade in your mortgage payment for a landlord? While the housing market has slowly recovered from its dip in the 2000s, blind faith in housing gains has not. Home ownership rates hit a 50-year low in 2015, and first-time home buyers are now waiting a record six years to move from renting to buying. In fact, young adults looking to upgrade out of their one-bedroom apartments are increasingly renting single-family homes rather than buying. Single-family rentals — either detached homes or townhomes — make up the fastest-growing segment of the housing market, according to the Urban Institute.

In the complex calculus that’s required for the renting vs. buying decision, one variable stands out: Which is cheaper? If that seems like a tough question to answer, there’s a good reason: crunch the data from America’s largest cities, and you’ll learn it’s a perfectly split decision. Home buying is a better option for those who plan to stay in one place for 3-5 years or more. It’s also a good investment in many housing markets. According to an Urban Institute analysis, among 33 top metropolitan areas in the U.S., there are 16 where buying is cheaper.

  1. Miami

    While it’s cheaper to buy than rent there, it would be a stretch to call the Miami housing market a bargain. A median-priced home still consumes 32 percent of a median earner income, above the recommended 30 percent.

  2. Detroit

    Not long ago, it was possible to buy a home in Detroit for well below the median home price in the U.S. The Detroit area has seen some revitalization in recent years, however, and while housing prices have gone up, it’s still a better value to buy a home there than it is to rent one.

  3. Chicago

    Rent in Chicago is on the rise faster than home prices. While they may level out in the near future, it’s a good time to buy while you still can.

  4. Philadelphia

    Renting is significantly more expensive than buying in the City of Brotherly Love. In fact, the average wage-earner would need a 36 percent raise to afford the average rent there. Buying, however, is more affordable.

  5. Tampa, Florida

    For roughly 90 percent of Tampa communities, renting is more expensive than buying.

  6. Pittsburgh

    The average rent in Pittsburgh is $1250 per month, whereas the average home price is just over $145,000. Broken down, it’s cheaper to buy in Pittsburgh, as your monthly mortgage will be much less expensive than the average rent.

  7. Cleveland

    In this popular college town, a homebuyer will save an average of $200 a month if they pay a mortgage instead of rent.

  8. Cincinnati

    Historically speaking, it’s been cheaper to rent than buy in Cincinnati based on the percentage of a person’s income that went to housing costs. That number is now lower for buyers and higher for renters.

  9. Orlando

    In the home of Disneyworld, the average monthly rent will will cost you roughly double what the average comparable monthly mortgage payment will.

  10. Houston

    Even though median rents are falling in Houston, it’s still cheaper to buy, especially if you plan on staying in your home for three years or more.

  11. San Antonio

    Average monthly rent for an apartment in San Antonio will run you $1,226 (estimated as recently as December 2017). The price of a home in the area is $232,000. While the housing market is trending upward, it’s still more advantageous to buy a home, especially if you plan to stay in the area for a long period of time.

  12. New York

    It’s no secret that home prices in the New York City area (including Newark and Jersey City) are well above the national average. However, rental prices are even higher, so if you can afford to buy property here, you’d be better off doing so rather than renting.

  13. Minneapolis/St. Paul

    The Twin Cities are becoming an increasingly popular to destination for young families to move, so it’s a good time to invest in property here instead of renting it.

  14. Kansas City, MO/KS

    Both rents and housing prices are low in the Kansas City area (average rent will cost just under a thousand dollars, while the average home price is $126,100), but buying is better long-term, as it offers more benefits, including potential tax write-offs.

  15. Columbus, Ohio

    Many market experts consider Columbus a “no-brainer” metro area as far as buying over renting. With affordable housing on both sides, the advantage goes to buying.

  16. Boston

    While a buyer may need a large income (or two above-average incomes) to buy here, they’ll need a slightly larger one to rent long-term.

If you’re looking to rent or by and are concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

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Cities to Consider When Renting and Buying

low-housing-inventory

January is a natural time to take stock of your financial life, and to dream big dreams about 2018. Could this be the year you make the leap to homeownership? Or, will you make a big change and trade in your mortgage payment for a landlord?

In the complex calculus that’s required for the renting vs. buying decision, one variable stands out: Which is cheaper? If that seems like a hard question to answer, there’s a good reason: crunch the data from America’s largest cities, and you’ll learn it’s a perfectly split decision. According to an Urban Institute analysis, among 33 top metropolitan areas in the U.S., there are 17 places where buying is cheaper, and 16 where renting is cheaper. We’ll get to that list in a moment, but here’s a hint: renters in high-flying West coast cities might want to sit tight for a bit longer.

Renting vs Buying

Fewer life decisions carry more weight than the renting vs. buying dilemma. And that choice is getting harder. A generation ago, buying a home was seen as a rite of passage, a natural (and necessary) step towards adulthood. It was also a solid path to wealth. A $25,000 home purchased in 1970 was worth almost $100,000 by 1990, and about $200,000 today, using national average appreciation. Plenty of baby boomers who bought average-priced homes as young adults find themselves living in a nice nest egg now.

All that changed when the housing bubble burst. Millions lost their homes to foreclosure. Millions more found themselves “under water,” meaning their homes worth less than their mortgage balance. At the height of the housing recession, 23 percent of mortgage holders — nearly 1 in 4 — were under water. They’d lost money on their investment. The myth that housing prices can only go up has been busted. Many of those bubble-era buyers wished they were renting.

While the housing market has slowly recovered, blind faith in housing gains has not. Homeownership rates hit a 50-year low in 2015, and first-time home buyers are now waiting a record 6 years to move from renting to buying. In fact, young adults looking to upgrade out of their 1-bedroom apartments are increasingly renting single-family homes rather than buying. Single-family rentals – either detached homes or townhomes – make up the fastest-growing segment of the housing market, according to the Urban Institute.

But renting is no picnic either. With all these new renters, markets are reacting accordingly, and costs are now skyrocketing at about four times the rate of inflation. In some places, rents are up much higher. Seattle saw an average of 6.3 percent rent increases last year.

Such volatility in housing and rental prices isn’t the only reason the renting vs. buying equation bas become more complicated. Thanks to structural changes in employment — led by the various form of the gig economy and the contingent workforce — flexibility is key for workers. Gone are the days where a worker could buy a house with a 30-year mortgage and count on a consistent commute for the next three decades. People change jobs much more frequently now. Millennials experience four job changes by age 32, according to a LinkedIn study; they’ll move 6 times by age 30, according to 538.com

While it’s possible to sell a condo or house and move, it’s much easier for a renter to relocate for that great opportunity on the other coast.

Income Driven Decisions 

For most people, however, it comes down to money. You might think renting is always cheaper than buying, but that’s incorrect. A long list of variables must be considered when running the numbers, like these: How long will you stay in the place? How much are property taxes? How much investment opportunity cost will you pay when putting a large down payment into a home? How much will you spend on house repairs or condo fees? How much might your landlord raise the rent?

The Urban Institute provides an interesting answer to these questions by comparing the percent of monthly income a buyer or renter would have to spend to own or rent an average home in cities around the country. To ease the comparison, the constants are pretty simple. The report assumes median income, then calculates how of that monthly paycheck would be eaten up by owning – including mortgage payments, interest, taxes, and insurance payments on a median-priced home – or by renting a median-priced 3-bedroom home.

Ordinarily, these costs have to move relatively in sync. When rents get too high, consumers are pushed into buying. The opposite is true, too — when homes/monthly mortgage payments are too high, people are nudged to rent. So these costs tend to move together, or at least like two balloons tied together by a string, floating up into the sky: One pulls ahead for a short while, then the other, and so on. After all, people have to live somewhere.

Cities Good for Renting

But in some cities, these rules don’t seem to apply at the moment, and either renting or buying has sprinted ahead. In those places, you might say the market is broken. The Urban Institute calls this the “rent gap.” In eight large cities in the US — all on the West Coast — the rent gap is higher than 4 percent, meaning it’s considerably cheaper to rent than buy. But on the other hand, there are six major cities spread throughout the East and the Midwest where buying is cheaper, using this monthly costs test. In between are 19 cities where rental and buying costs are basically running neck-and-neck.

The rent gap is most pronounced in places where housing prices have soared. San Francisco is the clear “winner” in the places where renting is cheaper than buying; there, the gap is more than 42 percent. San Jose comes in second at 19%. Seattle, San Diego, Sacramento, Los Angeles, and Portland round out the list of places where the gap is higher than 5 percent.

Cities Good for Home Buying

On the other side of the list — places where buying is cheaper than renting — begins with the winner, Miami.

It would be a stretch to call Miami a bargain, however. A median-priced home still consumes 32 percent of a median earner’s income, above the recommended 30 percent. Still, renting devours even more.

“Because Miami is the second-most-expensive city for rental housing, however, the median rent consumes 42 percent of the median income. So even at this high cost, homeownership is still the better bet,” the report says.

Detroit, Chicago, Philadelphia, Tampa, and Pittsburgh round out the list of places where the rent gap is 5% or more towards buying.

There are buying “bargains” in other cities, too. Cleveland, Cincinnati, Orlando, Houston, and San Antonio all enjoy rent gaps that are more than two percent.

What to Consider

This list comes loaded with caveats, however. The biggest one: Purchasing a home brings the potential of appreciation, and renting does not. That means buyers can “profit” over time and see the value of their investment rise. The longer the time living in the purchased home, the higher the odds that significant appreciation will occur. But don’t forget, transaction costs are significant. Not all those gains are “profit.” Closing costs when buying, and then later when selling, can easily eat up 10% of those gains. Then, there’s always the chance the value of the home will go down, re-creating the situation from the early part of this decade, when buyers lose money. And of course, there’s the variable every homeowner loves to hate, surprise repair costs. Renters generally don’t face that risk.

In the end, the renting vs. buying choice is intensely personal, and always depends on your family’s very specific situation. It’s unwise to ignore macro trends, however. Even if you live in a city where housing costs seem high, it’s worth considering a purchase if rental costs are soaring, too. On the other hand, don’t simply assuming that buying is better. That’s 20th Century logic which no longer applies to the U.S. housing market.

 

If you’re wondering if your credit it good enough to buy or rent, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

 

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The post Cities to Consider When Renting and Buying appeared first on Credit.com.