It is cheaper to buy than rent the typical home in just four of the 50 most populous U.S. metros. According to a new report from Redfin, on average, the typical home in the 50 largest metros costs 25% more to buy than rent, with an estimated monthly mortgage payment of $3,385 and an estimated rent of $2,715.
Individuals looking to purchase a home face lower costs than rent in Detroit, Philadelphia, Cleveland, and Houston, according to Redfin. In Detroit, the typical home is 24% less expensive to buy than rent. In each of the three remaining cities, the ownership discount is less than 10%. For the analysis, Redfin estimated monthly housing payments using a 6.5% mortgage rate and an estimate of the homes’ value in March; monthly rents were estimated for the same homes.
“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. But buying isn’t a feasible option for everyone” says Redfin deputy chief economist Taylor Marr.
According to Redfin, 80% of properties in Detroit are cheaper to buy than rent—the highest share in the U.S. Philadelphia (59%), Cleveland (57%), and Houston (52%) each have more than half of available properties that are cheaper to buy than rent. The national average is 19%.
According to Redfin, if the 30-year fixed mortgage rate fell to 5%, the median estimated monthly mortgage payment for buyers would be $2,993, or 10% higher than the $2,716 estimated monthly rent.
Regionally, metros on the West Coast feature a more distorted rent-versus-buy comparison than the national average. In San Jose, California, the typical home is 165% more expensive to buy than rent. San Jose is followed by other cities in the state—San Francisco (139% ownership premium), Oakland (99% premium), and Anaheim (91% premium)—as well as Seattle (88% premium) as the metros with the largest home buying premiums in percentage terms.
Among large pandemic boomtowns, including Sacramento, Las Vegas, Austin, and Phoenix, there are also virtually no homes that are cheaper to buy than rent. In Sacramento, Las Vegas, and Phoenix, the share of homes cheaper to buy than rent is 1% or smaller.
