Is Buying cheaper than Renting? Does it seem like you’re throwing your money away by paying your landlord? This study says you’re right!

The results of the latest Rent vs. Buy Report from Trulia show that homeownership remains cheaper than renting in 98 of the 100 largest metro areas in the United States.

In the six years that Trulia has conducted this study, this is the first time that it was cheaper to rent than buy in most of the metropolitan areas.

It’s no surprise, however,

that those two metros are San Jose and San Francisco, CA, where median home prices have jumped to over $1 million dollars this year. Home values in San Jose have risen 29% in the last year, while rents have remained relatively unchanged. I’m very familiar with that market – my son lives and works there. But in Santa Fe, buying is definitely cheaper and more wealth building than renting In order to calculate the true cost of renting vs. buying, Trulia includes all assumed renting costs, including one-time costs (like security deposits), and compares them to the monthly costs of owning a home (insurance, mortgage payments, taxes, and maintenance) including one-time costs (down payments, closing costs, sale proceeds). They also assume that households stay in their home for seven years, put down a 20% down payment, and take out a 30-year fixed rate mortgage. The full methodology is included with the study results here.

Most mortgage don’t require a 20% down payment, so the numbers work even more in favor of buying.

Below is a chart created with the data from the last six years of the study, showing the impact of the median home price, rental price, and 30-year fixed rate interest rate used to calculate the ‘cheaper to buy’ metric

In 2016, when buying was 41.3% less expensive than renting, the average mortgage rate was the driving force behind the difference. Rates this year are the highest they have been in six years which has narrowed the gap, all while home price appreciation has also been driven up by a lack of homes for sale.

Cheryl Young, Trulia’sChief Economist, had this to say,

 

“One point deserves emphasizing: The ultra-costly San Francisco Bay Area is not a harbinger for the nation as a whole. While renting may outweigh buying in San Jose and San Francisco, it is unlikely that renting will tip the scales nationally anytime soon.”

Bottom Line

Homeownership provides many benefits beyond the financial ones. If you are one of the many renters out there who would like to evaluate your ability to buy this year, give us a call and let us help you make your homeownership dreams come true!