Study: Identifying Locations Where Purchasing Homes Is More Economical Than Renting

Mortgage News May 30, 2023

A recent Redfin report reveals that in just four major metropolitan areas in the United States, purchasing a typical home would be more cost-effective than renting. This means that the estimated monthly mortgage expense for the typical home is lower than its estimated monthly rental cost.

In the 50 most populous metropolitan areas in the United States, the average cost of purchasing a typical home is 25% higher than renting. The estimated monthly mortgage payment for these homes is $3,385, while the estimated rent is $2,715. Redfin calculated the monthly housing payments based on the Redfin Estimate of the homes’ value in March, assuming a 6.5% mortgage interest rate (the average rate in March). The estimated monthly rents were determined using the Redfin Rental Estimate for the same properties.

Detroit boasts the highest percentage of properties, with 80%, that are more affordable to buy than rent among all cities in the United States. Philadelphia follows closely behind with 59%, followed by Cleveland with 57%, and Houston with 52%. In comparison, the nationwide share of properties that are cheaper to buy than rent stands at 19%.

San Jose, CA exhibits the largest premium in percentage terms among the 50 most populous metropolitan areas, with the typical home being 165% more costly to buy than rent. Homebuyers in this city face a median estimated monthly mortgage payment of $11,049, while the estimated monthly rent amounts to $4,176.

Both Sacramento and Las Vegas have less than a 1% share of homes that are more cost-effective to buy than rent. In Phoenix, this share is 1%, while in Austin, it rises to 5%. Notably, all four metropolitan areas, including Sacramento, Las Vegas, Phoenix, and Austin, were featured on Redfin’s list of the most popular migration destinations during the pandemic.

According to Shay Stein, a local Redfin Premier real estate agent, Las Vegas faces housing affordability challenges. The influx of people moving from expensive coastal areas during the pandemic led to soaring home prices that outpaced wage growth, disadvantaging local buyers. However, the current market slowdown has resulted in sellers being more open to offers from buyers using FHA loans and down-payment assistance programs, with some even providing additional funds for mortgage-rate buydowns. Such opportunities were unheard of during the intense homebuying frenzy of 2021.

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Need a loan officer list in your area? Contact Jennifer Swanson at 260-223-9203 or Jennifer@SpecialtyContactDatabases.com


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