Where Is It More Affordable To Buy Than Rent?

Rent prices are soaring across the country to the point where it may be cheaper to buy a house than to rent one, according to a report from Realtor.com.

In a report titled “January Rental Data; Buying a Starter Home is More Affordable than Renting in Over Half of the Largest Markets,” the real estate listings website reported that “buying a ‘starter’ home was more affordable than renting in 26 of the 50 largest metro areas.”

Realtor.com found that the average monthly cost to buy in those 26 markets was 20.6% lower, or approximately $323 lower, than the cost of monthly rent. Nowhere was this more evident in the report than in Pittsburgh, where the per-month cost to buy a starter home was $585 lower than the price to rent a similar property.

The areas surrounding metropolitan cities like Birmingham, Ala., where the cost to buy per month was $533 lower than to rent, and Cleveland, where the cost to buy per month was $516 lower than to rent, were among the most obvious differences in cost.

St. Louis, Detroit, Baltimore, Orlando, Tampa, Louisville and Virginia Beach, Va., are in the top 10 areas where the cost to buy per month for first-time buyers is cheaper than to rent.

However, this does not mean that overall it is cheaper for first-time buyers to purchase rather than rent. That is only true when looking at month-to-month payments in certain areas that do not factor in initial down payments required to purchase a house, even for first-time buyers where interest rates are lower. When interest rates rise, the prices to rent in these areas will eventually become cheaper per month than the cost to buy.

“The onset of the COVID-19 pandemic in 2020 spurred mortgage rates to new record lows, as the economy was faced initially with a rapid contraction that was the worst since the Great Depression and followed up by unprecedented accommodation by the Federal Reserve,” Greg McBride, chief financial analyst at Bankrate, said while analyzing historical mortage rates.

There are also plenty of popular metropolitan areas that favor renting over first-time buying in terms of cost per month. Austin, Texas, New York/Jersey City, N.J., San Francisco, Seattle, Boston, Denver, Portland, Los Angeles, Rochester, N.Y., and San Jose, Calif., are areas where renting is cheaper than buying on a month-to-month basis.

One of the reasons these states’ rents are able to rise so high is because they likely don't have rent control laws. According to the National Multifamily Housing Council, only five states have rent control laws. California and Oregon have statewide rent control laws while New York, New Jersey and Maryland allow local governments to control rent prices.

Another reason is the lack of available rental units as housing and rental markets recover from previous pandemic conditions, giving landlords more power to raise rents.

“Without a lot of rental vacancy that landlords are accustomed to having, that gives them some pricing power because they’re not sitting on empty units that they need to fill,” Danielle Hale, chief economist at Realtor.com, told AP News.

Ultimately, it depends on individual circumstances, length of time expected in a particular unit and location to determine whether the decision to buy over rent is rational. Hale told CNN that costs to purchase per month will be lower early in 2022, but are likely to rise later in the year.