Published 09/25/13 on Fox Business by Donna Fuscaldo
Mortgage interest rates may not be sitting at record lows anymore, but it’s still cheaper to buy than rent in most parts of the country, according to new research from real estate website Trulia.
Trulia compared the costs of homeownership and renting in 100 of the largest metro areas and found that even with rising mortgage rates, buy a home is 35% cheaper than renting. With that said, the gap is closing: a year ago, it was 45% cheaper to buy a home than to rent.
When comparing the costs of owning to renting, Trulia assumed buyers will get a 4.8% mortgage rate on a 30-year fixed mortgage with a 20% down payment. The estimate also assumed the buyers were in the 25% tax bracket and plan to stay in the house for seven years. Home prices and mortgage rates are rising, but they are coming off from such lows that it remains cheaper to buy than rent across the country.
Renting vs. Buying
Still, in some cities like San Jose, San Francisco and Honolulu, rising interest rates and increasing home prices are closing the gap on renting versus buying.
According to Truila, buying in Detroit is 65% cheaper than renting, but in San Jose, buying is only 4% cheaper. The website notes that purchasing a home in San Jose, San Francisco and Honolulu is 10% or less cheaper than renting compared to a year ago when it was 24% cheaper to buy in Honolulu, 28% in San Francisco and 31% in San Jose.
“The biggest factor narrowing the gap between the cost of buying and the cost of renting are rising mortgage rates, which affect the entire country,” the company said in a report. “In fact, the benefit of buying relative to renting shrank in nearly all of the 100 largest metros over the past year: only in Springfield, MA did the gap widen, from buying being 47% cheaper than renting last year to being 49% cheaper than renting today.”
Other cities that are close to the tipping point to favor renting, include Orange County, Calif., New York, San Diego, Los Angeles, Ventura County, Calif., Oakland and Sacramento.
Rounding out the top five cities where it’s much cheaper to buy then rent are Detroit, where its 65% cheaper, Gary, Ind., Memphis , Cleveland and Kansas City, Mo., where its 53% cheaper to rent than buy.
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