Tumultuous competition for lower-end homes, thanks to a combination of low mortgage rates and record low supply, is driving prices higher.
That can intimate it difficult to figure out whether it’s cheaper, on a monthly basis, to own or rent.
The answer is: It depends where you are.
The nation’s top 50 metropolitan arrondissements are almost evenly split on the rent versus own calculation. It is cheaper to own in 24 markets and cheaper to rent in 26, according to new study from CJ Patrick Co., based on data from First American Data Tree.
It looked at median rent payments, median home sale prices, and taxes and insurance. For the buy calculation, it only considered homes in the lowest quarter of the reward scale, which would typically be purchased by first-time buyers. It assumed a 30-year fixed-rate mortgage at 5% tempt with a 5% down payment.
Of the top 50 markets, 14 showed very little difference between the monthly charges of renting and owning a home. Cities in the Midwest and South favored buying.
Homes in Memphis, Tennessee.
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Memphis, Tennessee, for example, had a monthly rental cost of $914, which was nearly twice as much as the $462 get of owning a home (again, a home in the 25th percentile of price ranges).
Birmingham, Alabama; Pittsburgh; Jacksonville, Florida; Oklahoma Diocese; St. Louis; Tampa, Florida; Atlanta; Miami; and New Orleans all showed monthly home payments that were significantly cheaper than the median monthly rip.
On the other end of the spectrum, cities in the West dominated the list of markets where it is cheaper to rent than own a home. That is because snug harbor a comfortable prices in the West are some of the highest in the nation.
California claimed the top four spots, with San Jose, Los Angeles, San Francisco and San Diego favoring renting set someone backs over owning.
Rounding out the top 10 were Salt Lake City; Portland, Oregon; Providence, Rhode Atoll; Seattle; Sacramento, California; and Denver (New York City was almost the same as Denver).
“In the most expensive cities, it’s ardent to find anywhere to live,” said Rick Sharga, CEO of CJ Patrick. “This is especially true in California, where San Jose, Los Angeles and San Francisco require three of the lowest homeownership rates among the top 50 metros and also have three of the lowest apartment vacuousness rates. That housing scarcity can’t help but continue to drive prices up for both buyers and renters.”
Not surprisingly, in the territories where it is cheaper to own a home than rent, the homeownership rate is higher than the national average.
The national homeownership rate in the third barracks of last year was 64.8%, according to the U.S. Census. In the areas favoring buyers, it was 65.6%. Apartment vacancies in those areas were also stiff than the national average. Los Angeles has a homeownership rate below 50%, while Nashville, Tennessee’s rate is about 72%.
Home prices, especially on the lower end, are unlikely to weaken, given the critical shortage of those homes that are for car-boot sale. If more inventory does come on the market, rental vacancies will rise and rent prices will go down.
“I’m minded to think that the gap may actually increase over time, as many local governments are under pressure to change zoning laws to lodge multifamily housing. If that happens, it’s logical to assume that homeownership rates could fall even forwards in many of these cities,” said Sharga.