According to a report published by Realtor.com, renting was still less expensive than making monthly payments on a home in 45 of the 50 largest cities in the United States in December, despite the fact that rents have continued to rise across the country. On average, renting costs about $800 less per month than buying.
But there are five cities where buying a home is still cheaper than renting, despite stubbornly high prices, rising mortgage rates, and some of the least affordable home buying conditions in decades.
Rent is still going up, but it has slowed down steadily since 2022. According to the report, which was made public on Thursday, the national median rent increased by 3.2% from a year earlier in December. This marked the eleventh month of slower rent growth compared to January when growth peaked at 17.4%.
In December, the median asking rent settled at $1,712 per month, following four months of declines. That is still $308 higher than December 2019, but it is down $69 per month from the peak in July 2022. Additionally, it represents a 21.9% increase from levels prior to the pandemic.
Where it is better to buy
In many cities, renting was more affordable a year ago when rents were skyrocketing but mortgage rates were not.
However, the gap between rents and payments made by first-time homebuyers has widened as mortgage rates have doubled from where they were a year ago. In December 2022, the cost of owning a home increased by 37.4% over the previous year. That grew more than ten times as quickly as rents, which increased by 3.2 percent during the same time period.
As mortgage rates soared in the first half of 2022, several cities, including Atlanta, shifted from being favorable to buyers to renters; Baltimore; Charlotte, North Carolina; Cleveland; New Haven, Connecticut; Indianapolis; Philadelphia; Miami; and Tampa, Florida, Jacksonville, and Orlando.
In December 2022, Baltimore was the only city to revert to a more favorable buying environment.
Only five markets out of the top 50 cities in December favor homeownership over renting.
The monthly cost of homeownership in Memphis, Tennessee, was 32.7% lower than that of renting, making it the most cost-effective option for homebuyers over renters. Pittsburgh followed suit; Alabama’s Birmingham; Baltimore and Saint Louis Taxes, insurance, and homeowner association fees are included in the monthly costs of buying, which assume a 7% down payment and a mortgage rate of 6.36 percent.
The financial payoff of buying a home is being eroded by stubbornly high prices and elevated mortgage rates, which has resulted in a decrease in the amount of money saved by doing so in these cities from the previous year.
The individual’s personal circumstances, such as location, financial situation, and how long one plan to live in the home, ultimately determine whether to rent or buy. If you plan to live in your home for less than a few years, buying is generally not in your best financial interest. A common guideline is to spend at most 30% of your income on housing costs.
In addition, due to the historically low supply of available homes, buying a home is a lot more difficult than it sounds in many markets.
Where renting is better
When compared to buying, renting in Austin, Texas, cost 121% less per month—or $2,013 less—than buying. San Francisco came in second, with rents being 97% cheaper and Seattle being 86% cheaper.
According to the report, these rent-favoring metros are cities that have a higher concentration of high-earning tech workers and have higher average rent and buy costs than the national average.
According to Realtor.com, the advantage of renting is growing in Sun Belt cities, where rents continued to fall faster than in other parts of the United States in December.
Even though rents have gone up a lot in some cities, housing costs have gone up even more. Renting is still more affordable than buying a starter home, even in Florida cities like Miami, Tampa, and Orlando, which have experienced some of the highest rent growth and rent costs over the past year.
According to Danielle Hale, chief economist for Realtor.com, despite the fact that renting will likely be less expensive than buying for the majority of people in 2023, rental affordability is still a major issue given that prices are expected to rise to new heights.
“We expect rents will keep hitting new highs, driven by factors including still-low vacancy rates, lagging new construction, and demand from would-be first-time buyers,” Hale said.