Buying is more affordable than renting in these cities

Across the US rent is rising so fast that in many cities buying has become more affordable than renting, even with sky-high home sale prices.

The national median rental price jumped 19.8% in January from a year ago, marking the eighth straight month of double-digit increases, according to a report from Realtor.com. The national median rent was $1,789 last month.

“US rental markets are more than making up for lost time,” said Danielle Hale, chief economist at Realtor.com. Rents have now gone up 21% from January 2020, prior to the onset of the pandemic.

January’s biggest rent jump was in the Miami, Fort Lauderdale and West Palm Beach areas of Florida where the median rent was $2,895 a month in January, up 52.4% from last year. Miami is now the fifth most expensive place to rent in the country after several cities in California: San Jose, San Diego, Los Angeles and San Francisco.

The report found that the monthly cost of buying a starter home was more affordable than renting a similar-sized unit in more than half of the 50 biggest US cities.

While many people looking for an affordable place to live feel stuck between a rock and a hard place as both rent and homebuying costs are rising, a number of factors could tip the affordability scale in favor of people buying a home for the first time this year, Hale said.

Rents are forecast to outpace for-sale listing price growth in 2022 and are already accelerating across all sizes of rentals. Additionally, she said, survey data shows the majority of landlords plan to further raise the rents they ask this year.

Where it’s better to buy

Looking at national median home prices and rents, the monthly cost of renting is still slightly cheaper than owning a starter home, the report found.

But in 26 of the 50 biggest cities, the monthly cost of buying a starter home was an average of 20.6% – or $323 – less than renting one in January, according to Realtor.com.

Buying was most advantageous in Birmingham, Alabama, where the cost of buying a starter home was 44.3% less than the cost of renting in January. It was followed by Cleveland, Pittsburgh, and St. Louis.

A bicyclist rides by a row of homes on February 18, 2014 in San Francisco, California. According to a report by mortgage resource site HSH.com, an annual salary of $115,510 is needed to purchase a house in San Francisco where the median home price is $682,410. The report included 25 of the nations largest metropolitan cities with Cleveland, Ohio being the cheapest with a needed salary of $19,435 to purchase a home. (Photo by Justin Sullivan/Getty Images)

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Two cities in Florida – Tampa and Orlando – saw some of January’s fastest annual rent growth. In Orlando, buying was 27.1% less than renting and in Tampa, buying was 25.5% less.

Just because it is better to buy in a city doesn’t mean home prices aren’t also making strong gains – often it is both. In eight of the top 10 markets favoring buying, both the monthly cost of buying a starter home and renting one increased over the past year, according to the report.

The rent-or-buy decision ultimately depends on personal circumstances, including location, financial situation and how long a buyer intends to live in the home.

Generally it is not financially favorable to buy if you plan to live in your home less than a few years and a common rule of thumb is to not spend more than 30% of your income on housing costs, Hale said.

Plus, buying a home is a lot easier said than done in many markets, as the inventory of homes to buy is at a record low.

And as mortgage rates continue climbing, the clock is ticking. Those looking to buy their first home in 2022 are more likely to find lower costs now than later in the year, said Hale. But inventory isn’t expected to improve until later this spring.

Where renting is better

Given the skyrocketing increase in home prices in some major cities, there are many places where it remains more affordable to rent rather than to dive into the high-priced, competitive housing market, according to the report.

In January, the monthly cost of buying was about 25% higher – or $536 more – than the cost of renting in 24 of the 50 largest metro areas, on average.

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Austin, Texas, was the city where it was most beneficial to rent rather than buy in January. Monthly payments were about 76% higher – or $1,346 more – to buy a starter home in Austin than to rent, according to the analysis. It was followed by New York; San Francisco; San Jose; Seattle; Boston; Denver; Rochester, New York; Portland, Oregon; and Los Angeles.

In these top ten cities that favored renting, the monthly payments of buying a starter home were 41.6% – or $978 higher than rents – on average. For-sale starter homes in those places included a higher average share of condos than the national rate, and pricier home owner association fees.

“Deciding when to transition from renting to first-time buying is largely dependent on stage of life,” said Hale. “For young Americans like Gen Z who may have moved home to save money during Covid, renting in a big tech city offers flexibility and relative affordability even as rents recover in these areas.”