It’s currently cheaper to buy than rent the typical home in just four major metropolitan areas in the U.S., according to new data from Redfin.
Estimated monthly costs on a mortgage for a typical home are lower than estimated monthly rental costs in Detroit, Philadelphia, Cleveland and Houston, the real estate brokerage reported. Among the 50 largest metro areas in the country, buyers in the Motor City enjoy the largest discount over renters, with an estimated monthly mortgage payment of $1,296, compared with an estimated monthly rent of $1,697. This makes the typical home 24% less expensive to buy than rent.
Philadelphia has the second-largest discount for buyers at 7%, followed by Cleveland with a 4% ownership discount and Houston at 1%.
On average, the typical U.S. home has an estimated monthly mortgage payment of $3,385 (given the average mortgage rate of 6.5% in March) in the country’s 50 most populous metros, compared to an estimated rent of $2,715. This makes the typical home roughly 25% more expensive to buy than rent.
The figure is skewed even more heavily toward renting in some of the nation’s most expensive areas. The San Francisco Bay Area, for example, includes the three metros where the premiums for homeownership are highest on a percentage basis. In San Jose, the median estimated monthly mortgage payment for a homebuyer is $11,409, compared to an estimated monthly rent of $4,176. This makes the typical home 165% more expensive to buy than rent, the largest skew toward renting in the U.S.
San Jose is followed by San Francisco, where the ownership premium is 139%, and Oakland, at 99%. Two other West Coast cities — Anaheim, California (91%), and Seattle (88%) — round out the top five.
“Buying a home often makes more financial sense than renting if you can afford a downpayment and monthly mortgage because you’re building equity. … But buying isn’t a feasible option for everyone,” said Taylor Marr, Redfin’s deputy chief economist. “Some people move around a lot, so renting might make more sense because they won’t be in their home long enough to build equity. Many others simply don’t have the money for a downpayment — a situation that has become increasingly common due to rising mortgage rates and elevated home prices.”
Mortgage rates would have to fall substantially to make owning less expensive than renting in America’s major cities. If the 30-year fixed mortgage rate dropped to 5%, for example, the median estimated monthly mortgage payment would still be 10% higher than the estimated monthly rent. If rates fell to 4%, the premium for homeownership dips to 1%, and with rates of 3%, it would be 7% cheaper to buy.