Nationally, buying is 38% cheaper than renting with a traditional 20% down, 30-year mortgage, according to the latest Trulia report. Buying is an even better deal with a 15-year mortgage, but not as favorable with less money down.
Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas.
Today’s figure compares with the finding that buying was 35% cheaper than renting one year ago, says Jed Kolko, chief economist at Trulia.
“Why is the gap widening? Two reasons,” Kolko says. “First, in the past year, the 30-year fixed-rate mortgage rate has fallen from 4.8% to 4.3%. Second, rents have risen faster than prices, excluding foreclosures. Together, these trends have made buying even more affordable versus renting than it was last year.”
Consumers say the main obstacle to homeownership is the downpayment.
“For those would-be homeowners – especially first-timers without savings or equity from another home – a low-down-payment mortgage might be the only option,” Kolko says. “For others, paying all cash might give them the deciding advantage over other bidders on a house. This edition of Trulia’s Rent Versus Buy report focuses on how different types of mortgages affect the math of buying versus renting.”
While buying versus renting is a tougher call in California and New York, it’s an easier decision to make in the Midwest and South.
“The gap in the costs between renting and buying differs across metros largely because each market has its own typical prices and rents,” Kolko says. “In addition, property taxes and home-price appreciation differ locally. Taking all these factors into account, buying ranges from 17% cheaper than renting in Honolulu to 63% cheaper than renting in Detroit.”
Even in the tougher-call markets, buying probably won’t become more expensive than renting soon, especially as home price increases are slowing.
Falling mortgage rates and rising rents mean that buying looks even better versus renting than one year ago, especially in California, data show.
“But buying is not for everyone,” Kolko advises. “If you live in a market that’s a close call, and you plan to stay less than seven years, don’t itemize your tax deductions, or need an FHA loan, buying might not be the clear-cut winner.”
Read the full report here.
Written by Cassandra Dowell