Trulia: Buying Cheaper Than Renting, Mortgages Play Key Role

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.

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“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

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  • The last paragraph pretty much sums it up. “If you need an FHA loan, buying may not be a clear cut winner.” With approximately 97 percent of all mortgages in the U.S. backed by the government it’s difficult to take such reports seriously.
    Then of course there’s the uncertainty of property appreciation, employment job stability, and the “opportunity cost” of money, ( tied up 20 percent down) and the time value of money, all of which are seldom given serious attention in these “cheerleader” articles.

  • In Boston (and a lot of other places), renting is still the best way to put extra money away without being responsible for any of the risk that goes along with ownership (repairs, taxes, severe weather damage, ect). I think that in this economy, it doesn’t hurt to make cutbacks if it helps you save money over the long run. I don’t mind living in a slightly smaller place if it means I have a healthy savings and retirement account. After the most recent housing bubble created by the fed, I am not too interested in jumping in here. Other small cutbacks that can add up big?

    1. Review your car insurance regularly, the big guys like geico and esurance change their pricing every year. I found $25/month from 4AutoInsuranceQuote. It’s the best deal out there, IMO.

    2. Pack a bag lunch most days. Save money by eating out less in general.

    3. Don’t waste money in bars. They are the biggest frivolous expense in a lot of lives.

    4. Get rid of financial advisors who do not bring you any value. The 1% a year they cost adds up to enormous sums over a lifetime.

    5. Don’t be above using coupons.

    6. Do what Suzy Orman recommends and trade in expensive whole life policies for Term life. Mine from Life Ant costs $19 a month and I can sleep at night knowing my family is secure if anything happens to me.

    7. Drive slower. You can increase fuel efficiency 20% by driving slightly less aggressive, and slowing down 5-10 mph on highways.

    I would prefer to buy a house, but even with low rates inflation, taxes, and rising housing costs make it very tough to justify owning in many parts of the country on a middle class income.

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