It’s easier to land a rental home than a mortgage to buy one, but monthly rent is three times as expensive as the monthly cost of home ownership in some large metropolitan areas.
Home ownership is 45 percent cheaper than renting nationwide and cheaper than renting in all of the 100 largest U.S. metros by wide margins. How wide depends on the location according to Trulia’s Summer 2012 Rent vs. Buy Report.
“Despite the recent price rebound, rents continue to rise faster than prices, and mortgage rates are near record lows. Home ownership makes the most financial sense for people whose strong credit scores let them snag the lowest mortgage rate and who get the biggest benefit from deducting mortgage interest and property taxes from their income taxes,” Jed Kolko, Trulia’s Chief Economist.
• The cost of owning a home considers a 3.5 percent mortgage and itemized deductions at the 25 percent federal tax bracket with the home sold after 7 years. Costs include includes closing costs, maintenance, insurance, property taxes and other costs.
• The cost of renting includes a security deposit and renters insurance. Monthly costs are based on net present value of costs averaged over 7 years, and based on the average across all properties listed in the metro area, including those for sale and those for rent, in summer 2012.
In the 100 metros studied, home ownership affordability was best in Detroit, MI where home ownership was 70 percent cheaper than renting; Gary, IN, 63 percent cheaper; Oklahoma, OK, 63 percent; and Lakeland-Winter Haven, FL and Toledo, OH, both 61 percent cheaper.
Even in metros where home ownership affordabily was the lowest, home ownership affordability still outpaced renting affordability. It was 24 percent cheaper to own than rent in Honolulu, HI; 28 percent in San Francisco; 31 percent in both New York, NY-NJ and San Jose, CA and 32 percent cheaper in Los Angeles, CA.
The monthly savings was even more telling – $800 a month or more in San Jose, San Francisco, New York, Detroit, Gary and Oklahoma City.
For homeowners unable to secure the best mortgage rates, fail to itemize their tax deductions or plan to stay in their home fewer than seven years, the cost of home ownership, relative to renting, will be greater.
What the report doesn’t cover is rent-vs-buy factors that aren’t financial.
More buy-vs.-rent data is available in the New American Funding infographic below. Mouse over and click to enlarge it.