Buying us property cheaper than renting

Photo credit: Cyndie

The data from the website compares the average cost of renting and owning for all homes on the market within a metro and finds that despite rising home prices, today’s low mortgage rates have kept homeownership from becoming more expensive than renting both nationally and in each of the 100 largest housing markets.

In fact, mortgage rates would need to rise to 10.6 per cent for renting to become cheaper than buying nationally – and rates haven’t been that high since 1989.

However, prices and mortgage rates are both rising, according to new data from Freddie Mac and the National Association of Realtors. Indeed, sales have slowed in recent months due to falling affordability. Some markets will tip in favour of renting, forecasts Trulia, if rates hit 5 per cent, followed by San Jose and San Francisco.

Buyers during the housing bubble made big bets that home prices would continue to rise forever - and lost. With asking prices up 11.4 percent year-over-year nationally in January 2014, today’s buyers could fall into that same trap. So to help people consider the worst-case scenario, Trulia calculated the cost of renting vs. buying a home with the assumption that prices will appreciate or depreciate as they did during each local housing market’s worst seven-year period over the last 20 years. With this assumption, if the worst does happen, renting would become cheaper than buying in 37 of the 100 largest U.S. metros.
For example, buying would become 79 percent more expensive than renting in San Jose if prices fell 2.8 percent annually. This is because even small differences in price appreciation can have a big effect on the future sales price of the home.

“Buying remains cheaper than renting across the country even after 2013’s big price rebound,” said Jed Kolko, Trulia’s Chief Economist. “Mortgage rates are still near historic lows, despite rising a point in the past year, and would be the envy of time travelers from the 1980s, 1990s, or 2000s. Even in markets like San Francisco where home prices are high relative to paychecks, buying costs less than renting for people who stay seven years and itemize their deductions.”