It could soon be cheaper to rent than buy in these cities
Many city dwellers have one thing in common — they feel like they’re pouring money down the drain as they sign their rent checks every month.
But, it turns out the financial benefit of buying a home isn’t actually so clear in some markets.
Though it remains cheaper to buy than rent in all 100 of the biggest US metro areas, the gap has shrunk recently as price growth outpaces rent growth, according to a new report from Trulia’s senior economist Cheryl Young.
To calculate the financial cost of renting versus buying, Trulia assumed that households stay in their home for seven years and can afford to put 20% down and a 30-year fixed rate mortgage when buying a home.
Buying looks less attractive
The advantage of buying over renting has decreased in all of the metros from the same time last year because of three major factors: mortgage rates have increased slightly, rent price growth has only accelerated in seven metros (and stayed the same or slowed down in 93) and home values increased in all 100 metros, according to the report.
Home prices have been rising steadily over the past several years, hitting a 32-month high in February. Previously, rent prices had moved in tandem, but renting has actually grown to be a decent option, primarily where home prices are exorbitant — California, Hawaii and the Tri-State area (New York, New Jersey and Connecticut).
The margin between renting and buying in San Jose, San Francisco and Honolulu dropped to single digits for the first time in the last four years. Young says it soon could be cheaper to rent in these cities if interest rates continue to rise.
Buying nets a better deal than renting in metros across Southern cities like Baton Rouge and New Orleans, Louisiana, where it’s about 50% cheaper to buy than rent. It’s 47-48% cheaper to buy than rent in cities like Columbia, Charleston, and Greenville, South Carolina.
The percent cheaper to buy than rent overall has decreased from 41% a year ago to 33.1% today.
If you’re curious about the breakdown in your city, several sites — including Trulia — offer handy calculators that you can help you determine whether it would be that much cheaper to save up to buy a property.
Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.