The cost of renting has skyrocketed nationally in recent years, but could it actually be more affordable to buy a home in 2023?
When it comes to major U.S. metros, there are only four where you could actually save money every month by purchasing a home rather than paying rent, a study by real estate brokerage Redfin found.
With mortgage rates higher than they have been in decades, it may be surprising that any major U.S. metro could actually be cheaper for buyers. Those four outliers are Houston, Cleveland, Philadelphia and Detroit.
The largest discount, according to Redfin, can be had in Detroit, where the typical home is 24% cheaper to buy than rent. The Motor City is followed by Philadelphia (7%), Cleveland (4%) and Houston (1%).
In the rest of the country the balance works in the renter’s favor, with an average discount of 25% monthly going to tenants.
In pricey California cities such as San Francisco and San Jose, owning a home is a whopping 139% and 165%, respectively, more expensive than renting a place. The study, which used a 6.5% mortgage rate and analyzed single-family homes, condos/co-ops and townhouses, found that cities that became pandemic darlings also have a near total lack of homes that are cheaper to buy than rent. In Sacramento, Phoenix and Las Vegas it is just 1 percent, while in Austin it is 5%.
So what’s the incentive to buy in notoriously tight housing markets?
“Buying a home often makes more financial sense than renting if you can afford a down payment and monthly mortgage because you’re building equity,” said Redfin Deputy Chief Economist Taylor Marr. “When you own your home, your home pays you; when you rent, you and your home pay your landlord.”
Marr acknowledged that buying isn’t feasible for everyone, however, especially people who move around regularly or don’t have the cash on hand for a down payment with rates as high as they are.
So are people buying homes? April’s pending home sales were flat overall, according to the National Association of Realtors, with numbers dropping by 11.3% in the Northeast, but rising in the West, Midwest and South by 4.7%, 3.6% and .01%, respectively.