Report says Buying is Cheaper than Renting

Julie BrodieNo CommentsBuyers, Landlords and Tenants, Market Reports

Rent vs. Buy: Which is Better for your Pocketbook?Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas according to a recent report. Rising mortgage rates and home prices have narrowed the gap over the past year, though rates have recently dropped and price gains are slowing. Now, at a 30-year fixed rate of 4.5 percent, buying is 38 percent cheaper than renting nationally, versus being 44% cheaper one year ago.  The rent-versus-buy math is different in each local market. Buying ranges from being just 5 percent cheaper than renting in Honolulu to being 66 percent cheaper than renting in Detroit. But even for a specific market, the cost of buying versus renting depends on how much home prices rise (or fall) after you buy. The model used  assumes conservative home-price appreciation, but — as we all know after the last decade — home prices can unexpectedly rocket or plummet.

Buying Beats Renting Until Mortgage Rates Hit 10.6 Percent

Even though prices increased sharply in many markets over the past year, low mortgage rates have kept homeownership from becoming more expensive than renting. Also, in some markets, such as San Francisco and Seattle, rents have risen sharply; rising rents hurt affordability relative to incomes, but rising rents make buying look cheaper in comparison.  Will renting become cheaper than buying soon? Some markets might tip in favor of renting this year as prices continue to rise faster than rents and if – as most economists expect – mortgage rates rise, due both to the strengthening economy and Fed tapering. For each metro, we identified the mortgage rate “tipping point” at which renting becomes cheaper than buying, given current prices and rents. If rates rise, Honolulu would become the first metro to tip, at a mortgage of 5 percent. San Jose, Calif., and San Francisco would also tip before rates reach 6 percent. But those are the extreme markets. Nationally, rates would have to rise to 10.6 percent for renting to be cheaper than buying — and rates haven’t been that high since 1989.