September 30, 2013

Buying A Home Still Beats Renting By 35% In America’s Biggest Cities

Buying A Home Still Beats Renting By 35% In America’s Biggest Cities

Despite rising home prices and mortgage rates, it’s still cheaper to buy a home than to rent one in America’s largest cities. A new report from San Francisco, Calif.-based real estate site Trulia finds that, nationally, it’s 35% less expensive to own a home. Even in notoriously pricey, renter-heavy cities like San Francisco and New York, it remains 9% and 21% cheaper, respectively.

Of the top 10, eight are located in Calif., a state in which many cities, despite being plagued by high unemployment and the foreclosure crisis, never saw prices fall enough to fully align with other local economic fundamentals like median income.

The metro area that will swing back toward renting first is San Jose, Calif., when mortgage rates climb to 5.2%. It’s currently 4% cheaper to buy than rent in the Silicon Valley hub, a dramatic change from last year when it was 31% cheaper.

This really proves what we’ve all known: buying is cheaper than renting. It’s always a good time to buy.

I’m not sure what you’re doing this Monday morning, but if you’re not buying a home, you’re probably starting off this week in the wrong way.

What does your calculations show? Is buying cheaper than renting?

Comments (8) -- Posted by: burbed @ 5:42 am

8 Responses to “Buying A Home Still Beats Renting By 35% In America’s Biggest Cities”

  1. SiO2 Says:

    for my rba house, renting is cheaper than interest + tax + insurance + forgone interest on the down payment. Shouldn’t include P in the cost, since that’s reducing debt.

    However, if I extended the calc to 5 or 10 years, and included rent increases and minimal appreciation (2% p.a.), owning is cheaper. And that was before the 15% spike this year, which would pay for about 4 years of rent at current prices.

    Of course, if I thought I would move in the next 5 years, then renting is better for de-risking, so there is that to consider.

  2. donjumpsuit Says:

    I am glad nobody ever discusses any barriers of entry.

    To rent a house I need at the most 1.5X of one months rent as a security deposit.

    To buy a house I need 50-100X this amount. After this, most of my monthly payment in the first few years goes to interest, taxes, PMI and insurance.

  3. nomadic Says:

    Don, a down payment is “not a lot of money.” 😉

    At this point, with my mortgage at 3%, staying is cheaper than renting. Even ignoring exorbitant fees to sell.

  4. sprezzatura Says:

    Rule of thumb is that buying is cheaper than renting only if your timeline is 7 years or more.

  5. Real Estater Says:

    If you plan to be in the Bay Area (why would you want to be anywhere else?), buying now is better than buying later. Buying a little bit of something is better than buying nothing at all. If you are worried about barrier of entry, you should buy now rather than later, because the barrier only gets higher as time goes on.

  6. mtv-renter Says:

    Housing cost has been growing faster than incomes here for the last few years. This barrier to entry can’t keep getting higher as time goes on, it’s a mathematical impossibility. Buying a house now just so you can have one lest you are “priced out forever” is a really stupid reason.

    Your choice to buy should be based on how long you’re going to stay here, expectation of rental costs, lost opportunity cost of your money (hard to predict), housing appreciation (this is unknown). The relative values of these factors are completely subjective.

    I recently bought a house in the RBA simply because rental supply is short for 3+ bedrooms and very fickle in terms of price increases. I chose the RBA because my commute to cheaper areas would suck too much life out of me. I’m spending more on this house than I could rent something similar for the next few years at least, and it’s barely affordable. However, my costs won’t go up much because of the 30-yr fixed loan, and I won’t have the hassle of being forced to move when someone else sells or the rent goes up. I chose to do something that’s financially silly on paper because I have newborn kids now, and being forced to move with a whole family is just not worth the hassle for the savings.

  7. Real Estater Says:

    mtv-renter, you’ve just stated a host of additional reasons why one should buy instead of rent. You’re not the only one with these reasons. According to Zillow, “barrier to entry” is expected to go up by 10.7% by August 2014. You are a new homeowner, so your nervousness is understandable. However, I’m telling you there is nothing to worry about. You are all set.

  8. Real Estater Says:

    By the way, the government shutdown is a blessing in disguise. Imagine how much money we can save by shutting down the government for one day. In real estate terms, you won’t see anyone from NASA competing to buy homes this weekend.

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