Even with fluctuating rents across the country, by and large it is still a more affordable option than buying residential real estate in nearly every major city. Except four metro areas.
According to Redfin, Buying is more affordable than renting in Detroit, Philadelphia, Cleveland and Houston. In Detroit, the typical home is 24 percent less expensive to buy than rent—the largest discount in percentage terms among the 50 most populous metros.
Philadelphia offers a 7 percent ownership discount, followed by Cleveland at 4 percent and Houston at 1 percent. Nationwide, the typical home costs 25 percent more to buy than rent.
California, of course, offers an exception to that average. The largest homeownership premium is in the Bay Area, where it’s twice as expensive to buy than rent. Anaheim, the largest city in Orange County, is close behind the Bay Area where it is nearly twice as expensive to buy.
“Buying a home often makes more financial sense than renting if you can afford a down payment and monthly mortgage because you’re building equity. When you own your home, your home pays you; when you rent, you and your home pay your landlord,” said Redfin Deputy Chief Economist Taylor Marr. “But buying isn’t a feasible option for everyone. Some people move around a lot, so renting might make more sense because they won’t be in their home long enough to build equity. Many others simply don’t have the money for a down payment—a situation that has become increasingly common due to rising mortgage rates and elevated home prices.”
Redfin notes that if the 30-year-fixed mortgage rate dropped to 5 percent, the median estimated monthly mortgage payment for homebuyers would be $2,993, or 10 percent higher than the $2,716 median estimated monthly rent. That’s significantly lower than today’s 25 percent homeownership premium, with an estimated monthly mortgage payment of $3,385 and an estimated rent of $2,715. If rates dipped to 4 percent, the estimated premium would shrink to 1 percent.