Even with rent remaining painfully high in most large U.S. cities, buying a home is an even pricier proposition. In fact, there are now only four major metro areas where it’s cheaper to buy a home than to rent, a new study from real estate company Redfin has found.
Those cities are Detroit, Philadelphia, Cleveland and Houston, Jason Aleem, the senior vice president of real estate operations at Redfin, told CBS News. In all other major cities — from San Jose, California to Pittsburgh, Pennsylvania — you’re better off financially to stick with renting, the company’s analysis found.
Detroit, Philadelphia, Cleveland and Houston didn’t see the same run-up in housing prices during the pandemic as other big U.S. cities, which is why they’re currently more affordable for homebuyers than other locations, Aleem said. Home prices across the nation rose by double-digit percentages during the pandemic, and now house-hunter are facing another hit to their wallets because of the surge in mortgage rates.
“Rates are really the issue — they need to be in that 4% to 3% range” to make buying a place less expensive than renting in most cities, Aleem said.
The typical rate for a 30-year loan topped 7% this week, which means it’s now more than twice as expensive to finance a home purchase compared with 2021 and early 2022, when rates were about 3% or even lower.
On a national basis, the average home costs 25% more to own than to rent, the analysis found.
The gap in cost between owning a home versus renting an apartment is now at its widest in more than 15 years, according to a recent analysis from the National Multifamily Housing Council. Homeowners on average now pay an additional $1,176 per month compared with the typical rent at a professionally managed apartment complex, the organization found.
Where it’s cheaper to rent
San Jose, California — the center of Silicon Valley — is the city where it’s most expensive to buy versus rent, with Redfin finding that the typical home in region is 165% pricier than renting. The median estimated monthly mortgage payment for homebuyers is more than $11,000, compared with the median monthly rent of about $4,200.
San Francisco comes in second place with a 139% ownership premium, followed by Oakland, California, with a 99% premium. Even Pittsburgh, often considered one of the nation’s more affordable cities for residential real estate, is now pricier for home buyers, with Redfin finding that the typical house now requires $1,648 in mortgage payments, compared with $1,619 to rent.
Aleem said he has some advice for prospective buyers: “Marry the house, but date the rate.”
In other words, find a home that works for you, while understanding that mortgage rates change over time in response to the Federal Reserve’s federal funds rate and other market conditions. The Fed has been hiking rates for over a year in an effort to tame inflation, which has triggered the jump in mortgage rates.
“There will be opportunities to refinance” when rates drop lower, Aleem noted.
Still, Redfin predicts that mortgage rates will decline to about 6% by year-end, but that it is “unlikely” that rates could return to 3% in the near future.
Source: www.cbsnews.com
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