Buying beats renting in all 100 largest U.S. metros

Buying beats  renting

By Inman News

Despite recent price increases in many markets, it’s now cheaper to own a home than rent in all 100 of the largest U.S. metro areas, thanks to climbing rents and low mortgage rates and tax breaks for homeowners, according to a rent-vs.-buy report released today by real estate search site Trulia.

Homeownership is most affordable in Detroit, the report found, where the monthly cost of owning a home ($349) was 70 percent cheaper than renting one ($1,149). Gary, Ind., and Oklahoma City, Okla., both with monthly homeownership costs that were 63 percent cheaper than renting, were No. 2 and No. 3 in the report, respectively, for U.S. homeownership affordability.

For its analysis, Trulia averaged the price of homes for sale and for rent on its site in each metro from June 1, 2012, to Aug. 31, 2012. For homeownership costs, the report took into account closing costs, maintenance, insurance, property taxes and other costs. The report assumed homes would be sold after seven years and that owners were in the 25 percent federal income tax bracket, itemized their deductions, and could obtain a mortgage at a rate of 3.5 percent. Renting cost calculations included renters insurance and deposit.

Top 10 metros with highest homeownership affordability

U.S. Metro Monthly cost of homeownership ($) Monthly cost of renting ($) Difference ($) Difference (%)
Detroit, Mich. $349 $1,149 -$800 -70%
Gary, Ind. $616 $1,649 -$1,033 -63%
Oklahoma City, Okla. $590 $1,576 -$987 -63%
Lakeland-Winter Haven, Fla. $495 $1,276 -$781 -61%
Toledo, Ohio $476 $1,222 -$746 -61%
Memphis, Tenn.-Miss.-Ark. $548 $1,389 -$841 -61%
Warren-Troy-Farmington Hills, Mich. $588 $1,494 -$907 -61%
Cleveland, Ohio $585 $1,464 -$879 -60%
West Palm Beach, Fla. $723 $1,764 -$1,041 -59%
Birmingham, Ala. $515 $1,247 -$732 -59%

 

The difference between the cost of owning and renting was least pronounced in Honolulu (24 percent), San Francisco (28 percent) and New York, N.Y. (31 percent).

“Homeownership 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,” said Jed Kolko, Trulia’s chief economist, in a statement.

Top 10 metros with least difference between owning and renting

U.S. Metro Monthly cost of homeownership ($) Monthly cost of renting ($) Difference ($) Difference (%)
Honolulu $1,519 $2,007 -$488 -24%
San Francisco $2,327 $3,226 -$899 -28%
New York, N.Y.-N.J. $1,857 $2,687 -$831 -31%
San Jose, Calif. $1,819 $2,646 -$827 -31%
Los Angeles $1,379 $2,020 -$641 -32%
Ventura County, Calif. $1,516 $2,274 -$759 -33%
Orange County, Calif. $1,610 $2,423 -$813 -34%
San Diego $1,314 $1,981 -$667 -34%
Albany, N.Y. $999 $1,535 -$536 -35%
Long Island, N.Y. $1,603 $2,513 -$910 -36%

Source: Trulia

The report also shows how the costs of homeownership rise in relation to renting when some of the assumptions like tax bracket, length of stay in the home and mortgage rate change. For example, owning a home in the New York metro becomes 3 percent more expensive than renting when the mortgage rate is 4.5 percent, the homeowner does not take advantage of the mortgage interest tax deduction, and stays in the home for only five years.

Although Trulia’s report shows that homeownership makes economic sense in all of the 100 largest U.S. metros, a May 2012 Rent.com survey of 500 renters showed that 61 percent of respondents had delayed homeownership for financial reasons, including rising down payment requirements and the need for higher credit scores to get home loans.

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About reinhartsouth

2008 wasn’t the best time to open a new office, but the Charles Reinhart Company looked to expansion as the way to ensure the future. Reinhart South, now located on the corner of State Street and Eisenhower Boulevard in Ann Arbor, opened January 7, 2008 in a small office on Washtenaw Avenue. Facing the bleakest economic situation since the great depression, Manager Dawn Foerg began the process of recruiting top real estate talent to the company. One agent at a time, South grew. By early 2009, 15 agents called the South office home. Still fighting the economic crises, the office grew to more than 40 licensed Realtors by the end of 2010. Today, South is among the five top producing offices in Ann Arbor.
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