Earlier this month, the real estate information company Trulia published the results of a rent-versus-buy analysis for major cities across the country. In most of the country’s major metro areas, buying is still cheaper than renting in terms of monthly costs.
In some cities like Philadelphia, Fort Lauderdale and New Orleans, there’s a big advantage to buying a house versus renting in 2017. Home buyers who purchase a median-priced property in these areas could enjoy much lower housing costs than those who pay rent.
Renting Versus Buying a Home in 2017
To determine the financial costs associated with renting versus buying in 2017, Trulia’s analysts assumed that people stay in their homes for seven years and can afford to put 20% down on a 30-year fixed-rate mortgage loan.
(Editor’s note: The seven-year staying time used for this study is fairly realistic, based on moving and relocation trends. But the down payment might be a big high. Many home buyers these days make smaller down payments.)
Using the parameters stated above, the company found that it is still cheaper to buy a home than to rent in all of the country’s 100 largest metropolitan areas. But the monthly cost gap between renting and buying has narrowed in recent months, mainly because home-price gains have outpaced rent increases in most cities.
In some areas, having a higher mortgage rate or putting less money down would shift the entire comparison, making it too close to call. But in other cities, the rent-versus-buy decision is more clear-cut.
Here are some key findings:
- Steadily increasing home values, combined with “flat” or slower-rising rent costs, are shifting the rent-versus-buy equation in many of the largest housing markets across the country.
- It’s still a better deal to buy a home than to rent, in most cities across the U.S. But changing economic conditions are making it a close call in some areas.
- Within the 100 metro areas reviewed by Trulia in spring 2017, buying a home was still cheaper than renting. But it’s a broad spectrum. For example, it’s about 50% cheaper to buy than to rent in Baton Rouge. But in San Jose, California, it’s only 3.5% cheaper to buy (based on median home prices versus rents).
- While buying is still a better deal in most metro areas, rising mortgage rates have reduced the financial advantages of purchasing a home versus renting. Slower rent growth has also contributed to this trend. Home values increased in all 100 of the metro areas that were reviewed, while rent prices had either slowed or remain stable in 93 of the metros.
- If mortgage rates continue to climb, renting could soon be the cheaper option in high-priced housing markets like San Francisco and Honolulu.
10 Cities Where It’s a Lot Cheaper to Buy
A couple of Louisiana metro areas topped the list of places where buying is cheaper than renting in 2017. South Carolina was also well represented in these rankings. According to Zillow, “Detroit and Philadelphia are also markets where buying far outweighs renting. Here, home seekers find it at least 45% cheaper to buy than rent.”
Here are the top ten cities where it’s much cheaper to buy a home in 2017:
| U.S. Metro | Median Price | Median Rent | % Cheaper to Buy Than Rent, Spring 2017 |
|---|---|---|---|
| Baton Rouge, LA | $171,238 | $1,400 | -50.1% |
| Philadelphia, PA | $148,712 | $1,275 | -48.3% |
| New Orleans, LA | $176,360 | $1,400 | -47.9% |
| Columbia, SC | $129,134 | $1,150 | -47.8% |
| Fort Lauderdale, FL | $226,528 | $1,800 | -47.0% |
| Charleston, SC | $226,158 | $1,600 | -47.0% |
| Greenville, SC | $153,993 | $1,250 | -46.3% |
| Detroit, MI | $70,031 | $850 | -46.2% |
| Birmingham, AL | $130,430 | $1,100 | -45.8% |
| West Palm Beach, FL | $253,719 | $1,950 | -45.7% |
In some of the higher-priced areas of the West Coast, including San Jose and San Francisco, a slight increase in mortgage rates could make renting the cheaper option. In fact, seven of the 10 cities with the closest margins were located in California. Residents of these more expensive housing markets have a tougher decision, when choosing between renting or buying a home in 2017.
Incidentally, California’s housing markets are also tough for first-time buyers.
Disclaimer: This article uses data provided by third parties not associated with our company. The results and findings shown above are deemed reliable but not guaranteed. We have presented them here as an educational service to our readers.