(The Hill) — It is common knowledge that owning a home is better than renting it in several important ways, starting with the fact that homeowners pay off their own mortgages, not someone else’s. It’s common knowledge.
But homeownership will feel out of reach for many Americans in 2023, thanks to the historic coincidence of high mortgage rates and high selling prices.
Surprisingly, real estate analysts can still point to some big cities where home ownership is cheaper than renting.
We’re not talking about San Francisco or New York, where homeownership comes with a hefty premium. Housing prices in these cities are low enough that the average monthly mortgage payment is still lower than the typical monthly rent in the same city.
In a recent report analyzing 50 metropolitan areas, Redfin identified: where only four Still cheaper to buy than rent.
Independent analysis by Realtor.com economists 5 locations When owning is cheaper than renting.
“The housing market is in a tough spot,” said Daniel Hale, chief economist at Realtor.com.
One big reason is mortgage interest rates. After years of historically low interest rates, the average 30-year fixed mortgage rate is now at 6.7%. according to federal datarates have hovered below 5% for most of the last decade.
Rising interest rates have pushed home prices down slightly, but they are still high.of median selling price It surged from $322,600 in early 2020 to $479,500 in the second half of 2022 before dropping to $436,800 this year.
Another reason for the tight housing market is “not building enough homes,” Hale said. “We are not keeping up with the number of households being formed.”
A nationwide housing shortage “makes it difficult to rent or buy,” she said.
There aren’t many bargains on the rental market. Median asking rent will top $2,000 for the first time in 2022. That number is now $1,995. According to Redfin.
Hale expects rents to gradually drop later this year. “She doesn’t want to oversell a remedy for renters, but this is a step in the right direction,” she says.
Darryl Fairweather, chief economist at Redfin, said he expects homebuyers to feel some relief, but perhaps next year.
“I think mortgage rates will go down again,” she said. “Right now, I think it’s inflation that’s driving the ship, but it seems to be settling in.”
Fairweather expects interest rates to fall to around 5% by the end of 2024, “should be enough to revive the housing market.”
High interest rates and the dizzying calculations of high purchase prices make owning a home much more expensive than renting in most large US cities. One extreme example is Austin, Texas, where even a starter home could cost buyers about $3,700 a month, according to Realtor.com. Monthly rent there averages about $1,650.
Hale said cities with affordable starter housing in 2023 will tend to be “smaller metropolitan areas.” “They tend to have a higher ownership rate and less rental inventory.”
These were mostly inland cities, and the property market did not experience the “massive inflated prices that make buying a home unaffordable, as is common in many coastal markets,” she said.
Here are nine cities tagged by Realtor.com or Redfin analysts that are still cheaper to own than rent. Oddly enough, both lists do not include cities. The reasons seem to lie in various methodologies, which are a bit too cryptic to detail here.
Realtor.com says Memphis homebuyers can save hundreds of dollars a month compared to renters, despite soaring sales prices. The median monthly cost for a first-time homebuyer in Memphis is just $847, compared to his median monthly rent of $1,258.
New apartments in Memphis are “affordable,” Joe Spark, a broker at Incity Realty in Memphis, said in a report for Realtor.com. A $1,600 monthly rent for a two-bedroom apartment is “not unusual.”
According to Redfin, owning a home in Philadelphia is on average 7% cheaper than renting. Monthly rent in Philadelphia averages about $2,000, while mortgage costs average $1,869 per month.
Home seekers can save $350 a month by buying rather than renting a Pittsburgh starter home, according to Realtor.com. The median monthly rent is $1,445, but the mortgage cost is $1,097.
“This Rust Belt hub experienced a massive population exodus after the steel industry’s recession in the late 20th century, leading to an overall stagnation of real estate,” reports Realtor.com. “But unlike other urban subway hubs, we’re seeing downtown revitalization and gentrification.”
Owning a home in Cleveland is 4% cheaper than renting, according to Redfin. The median mortgage cost is $1,730 and the median rent is $1,800.
According to Realtor.com, Alabama’s capital city remains affordable for home buyers even in a tough market. The monthly cost for a starter home is just under $900. Rental fees average about $1,150 per month.
According to Redfin, owning a home is 1% cheaper than renting in the nation’s fourth-largest city. Both his median rent and mortgage costs fall in the $2,300 to $2,400 range.
According to Realtor.com, starter home prices in St. Louis are now 34% higher than they were just a year ago. Nevertheless, “mortgage payments are still marginally cheaper than renting.” Monthly rent in St. Louis averages $1,211, while the buyer’s monthly cost is $1,128.
Baltimore is also a tiny fraction cheaper for buyers than borrowers. “The average monthly savings will be about $65,” he reports Realtor.com.
“Many potential buyers have left the market,” Jason Lerner, vice president of George Mason Mortgage in Baltimore, said in a report. But as demand falters, sellers become more aggressive in bargaining.
Redfin says the Motor City offers the best relative value in the country for those looking to own rather than rent. Buying in Detroit is 24% cheaper than renting. Monthly mortgage costs average about $1,300, while monthly rent is about $1,700.
For those deciding to rent or buy, a lot depends on how long the home seeker plans to stay in the residence. Sure, homeowners build home equity, but buyers who sell in a year or two don’t build much of home equity.
As a rule of thumb, homebuyers should plan to stay in their home for at least five years, Fairweather said. “I think five years is long enough to ensure that the property costs are covered if we ever need to sell it.”
Hale agrees and encourages prospective buyers to check Realtor.com for information. rental or purchase calculator.
https://www.mystateline.com/news/9-cities-where-buying-a-home-is-still-cheaper-than-renting/ 9 cities where buying a home is still cheaper than renting