Owning is cheaper than renting in much of the U.S.

[brooklynite]

Axios

Owning a median-priced home is more affordable than the average rent on a three-bedroom property in 58% of the U.S., a new report says.

There's a big city/suburban divide, though: Renting makes more sense in big metropolitan areas, while homeownership wins out in rural areas and suburbs, where property prices are lower.

Why it matters: Even with home prices continuing to climb, the affordability gap is narrowing, which may signal the imminent end to what's been a steady run-up in home prices.

Driving the news: A new report by ATTOM, the big real estate database company, shows that the more populous a county, the more likely it is that renting will be cheaper than owning, and vice versa.

[DBoon]

1. hoe much home ownership is pure speculation?

with some money laundering thrown in for good measure.

[FBaggins]

2. This could confuse many people

Owning/renting should be more about how long you expect to live in the area (and that specific home) - and less about the relative monthly housing expenses.

[GregariousGroundhog]

5. It's more than monthly housing expenses

If someone wants to buy, they usually needs to put up a 20% down payment. The rule of thumb I've heard is that if a purchase price is more than 15 times annual rent, one's net worth will increase faster by renting and investing in the S&P500 what would have been the down payment.

Interest rates, property tax rates, and the availability of VA or Home Ready Loans can shift the break even point though.

[PTWB]

9. I think it is pretty common for folks to put down much less than 20% these days.

5% is fairly common. In my relatively small circle of friends and family, I'd bet only half put down 20% (or more) on home purchases in the last ~10 years.

[ProfessorGAC]

29. That's Accurate

Been that way for quite some time.
I was on the board of directors of an independent community bank for 19 years. I haven't been on the board since 2009, but even back then, 5 & 10% down payments were by far the most common, for first time buyers.
People moving into a new place usually had enough equity built that the loan to property value ratio was much lower.
But, first timers very commonly put 5, 8, 10% down.

[brush]

10. Also a rental is cheaper to get into...no large down payment...

closing costs, attorney fees, local government fees etc.

[Bettie]

16. Everyone I know who rents has to have

first and last month's rent, a security deposit, and a cleaning deposit....basically, four months rent.

[brush]

30. Still not as much as what you need for a mortgage and closing costs...

attorney fees, appraisal cost, local government fees and whatever else they can clip you for.

At a closing they line up with their hands out for a check.

[Bettie]

32. We're near to paying our house off

looking forward to that.

And even with closing costs, a house is generally a better investment.

I grew up in apartments. Hated it. Glad to have our own space now. Others may like living in a place surrounded by strangers, but it isn't for me.

[brush]

33. Agreed. I'm a homeowner but the cost of initially getting into...

a home is more expensive even than when first renting with first and last months' rent, security and cleaning deposit all due on signing the lease.

Home ownership is more advantageous in the long run...much more with the build of equity and value appreciation.

[Bernardo de La Paz]

3. It is very expensive to own libruhls by dieing of covid compared to living rent free in their heads.

[Emile]

4. It has always been that way. I bought my first house in 1976

for $8,000.00, lived there 2 years and sold it for $18,000.00.

[Emile]

19. You always so judgemental?

[NQAS]

6. Weird country we live in

Where you can pay your rent but when you want a mortgage to buy a house that has the same monthly payment, the bank says you can't afford that mortgage.

Then there are towns where slumlords command big city rents because of some factor or other in that community. College towns, for example. As a result, rents for regular folks are just too damn high (that's putting aside the issue of home ownership). And the knock-on effects of this scenario are serious. No affordable housing in significant numbers, no businesses want to move in or expand because there's no housing for their prospective employees.

Another poster commented on what might be very large-scale private equity purchases of homes throughout the country. Drives up prices and puts regular people out of the running for home ownership. I haven't read a lot about this, but I hear that it's really skewing the market.

One of my kids bought and renovated a home in a coastal community a few years ago. It's now valued at just under $1 million. No plans to sell, and there's no telling whether that's a real-life value (as opposed to a Zillow value), but that's just nuts. It cost less than half of that, btw.

Another child just bought a house, coincidentally in another coastal community. You would not believe the hoops that had to be jumped through, because she's a gig worker (a highish end gig worker, but no W-2s). Her mortage is maybe $200/month more than the rent she'd been paying for the past three years in the same town, and the demands from the bank pretty much didn't stop until the actual closing.

In any case, strange times, hey?

[bucolic_frolic]

8. private equity

Yes that is true. Zillow was in that market, they would price, buy, and reprice the same house. How that passed legality I don't know. But Zillow got burned. They exited house ownership about 6 months ago, losing some 170million.

[PJMcK]

11. A few thoughts

It's not really effective to compare the cost of renting a home with the cost of owning one. The renter faces one payment a month. The owner has to pay for maintenance, taxes and many other expenses that are factored into a rental property. Your first paragraph doesn't recognize this and it may be one reason a bank would reject a loan application. Accordingly, $1,000/month for rent does not equal a $1,000/month mortgage payment.

Good for your kids buying and renovating their homes. As the first one has demonstrated, it's a good investment even if it's just on paper.

A good rule that I learned from HGTV, no less! If you want to buy a home, look in the better neighborhoods for the most unattractive house. Buy it and renovate it. Almost always, you'll come out on top.

Regardless, I agree with you that we live in very strange times and our country has become nearly unrecognizable.


ETA: Owning is less expensive than renting for another reason: In most cases, you can deduct the interest payment in your mortgage from your income taxes. This lowers the effective monthly cost significantly. In fact, this is one of the biggest drivers for the mortgage business.

[NQAS]

27. Good points

One of them bought a fairly unattractive house just outside the historic district. There were no restrictions on renovations. Houses down the street, inside the district, are much more expensive.

And the other one bought on the edge of walking distance to downtown. Bit of a pain,but still within the better zip code. Location location location works in different ways.

[bucolic_frolic]

7. Of course renting is more expensive

It's the same costs as owning but the money gets routed differently, then you have to add on the overhead of the landlord including the rents as income, legal risk, more aggressive and instant maintenance, possible months without tenants, and higher liability.

There was a youtube video of some famous landlord of large and small properties. He broke it down - after all those factors, the landlord of a small building earns somewhere - after tax - of 8 to 10 percent on his invested capital. Almost anyone is better of with a portfolio of blue chips and covered calls. Another article said when you buy a rental property, never pay more than 6 times the annual rents. So unless you buy a fixer upper and put some sweat into it ....

[brush]

31. It's about the costs of the renter, not the owner of the rental.

[bucolic_frolic]

34. The costs of the owner determines what the owner would like to charge for rent

He may not get his number, but he sure doesn't want to rent at a loss every month.

[Sympthsical]

12. Frequently the case in California

The problem is swinging the down payment.

Between partner and I and one tenant, I'm paying less per month on a 5 bedroom house mortgage than I was renting my own one bedroom apartment. Sure there are taxes and whatnot now, but I'm building equity. Mix in a 30% increase in valuation over two years, and recent refinance that cut three years off the 15 year mortgage.

It is far, far cheaper to be owning than renting in the Bay Area.

But no one can afford to buy, so . . .

[AngryOldDem]

13. Painfully aware of this.

I live in a populous “donut” county in a major metro area and from what I can tell here, it’s probably cheaper to own than rent. But I don’t want to take on a mortgage and the expense of house repairs, upkeep, etc., at my age, either. Depending on how much the rent on my townhome jumps this year, I may consider renting a house in the city rather than the ‘burbs — rents, in some cases, are lower and my commute would be shorter.

I’m not going back to apartment renting under any circumstance.

[patphil]

14. From my point of view, the biggest advantage to owning is equity.

You can rent for 20 years, and walk away with nothing, If you pay a monthly mortgage you could have a substantial amount of equity in your house...especially in a rising market.
My wife and I paid $369. for our house 19 years ago. Even after a recent refinance we only owe $215,000 and pay a $930. monthly mortgage.
Yes, there are taxes, utilities and upkeep, but rent for a 3 bedroom apartment would be nearly the same amount, without the nice yard, and, our house is now valued at $479,000.

Long term, owning is better for us.

[madville]

20. Inflation is a big factor as well

Rents will continue to rise while a fixed rate mortgage payment will stay constant. In say 10 years a $1500 a month apartment could be well over $2000, whereas a a fixed $1200 a month mortgage will still be $1200, taxes and insurance may have gone up a little but that affects rentals also since it’s built into the rent payment.

[patphil]

26. I agree, in the long run, ownership is better.

[Dyedinthewoolliberal]

15. I grew up in Detroit

and left for about 40 years. Came back to Michigan because where I was living in Everett, Washington, just got too expensive to rent.
I came to Bay City where I own a small home, larger than my apartment for about $400 less per month. There are tradeoffs though, as it is 20 degrees today and will stay cold for the next 60 odd days............

[madville]

17. Inflation is a huge advantage to home ownership over renting

I have a 2100 sq ft house with a 1300 detached metal building on 6.5 acres 5 miles from the city limits. My monthly payment with taxes and insurance escrowed in is $1350. A 1500-1600 sq ft 3 bedroom apartment or townhouse is $1500-1800 a month five miles away in a nice area.

Over time, maybe 10 years or less at this rate, with inflation those apartments and townhouses will be say $2000-2500 a month, my house payment will still be $1350 (maybe a little more depending on taxes and insurance which is cheap in my area) and my home value will likely have increased as well.

Renting only makes sense in this area if it’s short term, like a few years or less. When I lived in California at one time all I could afford to do was rent though, $2000 a month for a one bedroom apartment but the cheapest house in the area was over a million!

[SKKY]

21. That has certainly been my case...

[marie999]

22. In Jacksonville NC it is cheaper to own then rent because a lot of young Marines rent.

3 of them will rent a 3 bedroom house for $1,200 or more. You can get a nice resale 3/2 for as little as $130.00 because it seems most people want to buy new homes which start at about $200,00. Even an E-4 gets $843 a month. It is probably the same near many large bases.

[thatdemguy]

23. I bought rural using a usda loan

I had to pay for things like home inspection, septic inspection etc. But I also at the time 3.5 years ago, got the seller to kick back 3%. I actually walked out of closing with a 500 dollar check. Nothing out of pocket, no down payment, no pmi and my credit score at the time was just over 640 iirc and could have been as low as 580 I think.

2400 sq ft above ground 5.25 acres, 1300 sg ft basement. With a 400 acre park across the street.

The tenant that was renting the house when I bought it was pay 2500 a month plus utilities etc. My mortgage including ins and taxes is 2060.

You dont need lots of money down, I would not trade where I live for anything. I am 5 miles outside of a med sized town with everything I need there.

[JanMichael]

24. What is amazing is how much lower rents are in other OECD countries.

Not OECD but 100 countries:

https://www.numbeo.com/cost-of-living/country_price_rankings?itemId=26

City Center prices for one bedroom apartments for the top 30:


1. Hong Kong 2,271.44 $
2. Singapore 2,100.27 $
3. Luxembourg 1,727.60 $
4. Switzerland 1,630.78 $
5. Qatar 1,554.29 $
6. Iceland 1,396.09 $
7. Ireland 1,367.87 $
8. United States 1,355.39 $
9. Australia 1,234.62 $
10. Netherlands 1,216.98 $
11. United Arab Emirates 1,164.37 $
12. Norway 1,115.40 $
13. Israel 1,101.38 $
14. New Zealand 1,095.26 $
15. Canada 1,084.93 $
16. Denmark 1,025.89 $
17. United Kingdom 1,025.22 $
18. Malta 931.69 $
19. Nigeria 923.16 $
20. Bahrain 910.73 $
21. Kuwait 898.57 $
22. Lebanon 883.33 $
23. Sweden 847.04 $
24. Belgium 835.70 $
25. Germany 834.38 $
26. Finland 823.86 $
27. Austria 788.27 $
28. France 759.56 $
29. Japan 745.66 $
30. Spain 727.23 $

Unreal.

[honest.abe]

25. Generally speaking, if you plan to move in less than 5 years then renting makes more sense.

The break even is somewhere between 3 and 5 years. Of course this also depends on house values increasing somewhat.

[ProfessorGAC]

28. It's About A Wash Here

A local car dealership owner has a 6 or 7 rental properties in our neighborhood.
What his tenants pay (except for 2 for whom he's never raised the rent) would be just a little under a mortgage payment, plus escrow, assuming I've properly assigned sales prices to these houses. (All pretty small & older, and I know what our house in the same part of town is worth.)
One could probably be building equity for $50-75 a month more.

[Roisin Ni Fiachra]

35. We live in a rural tourist area, and rent here has skyrocketed beyond belief.

Wealthy people are buying up homes as fast as soon are put up for sale, and they then turn these homes into vacation rentals, for which they charge other wealthy folks $1000 a week or more to stay in. Another factor driving up the cost of housing is wealthy retired people leaving more heavily populated areas and buying or building homes here because of Covid.

A side effect of this phenomenon is that there is no affordable housing for workers, which has led to a severe labor shortage. Employers cannot pay workers enough to allow them to afford housing, and there are "help wanted" signs everywhere.

We are fortunate in that we bought a home here decades ago. We could never afford to buy or rent a home anywhere near this area now. The good news is, workers who aren't wealthy, and who own their homes, are getting raises. making good wages, and have employment stability, because employers don't want to lose them. There is simply no one to replace them if they quit, or get fired.

Employers know that if they don't treat their staff with respect, their staff can easily find another job with better working conditions and equal or better pay somewhere nearby.

[Amishman]

36. not surprising, ownership cost calculations typically don't factor in long term maintenance

Things like roof replacement, exterior painting, septic field replacement, etc. Where the typical landlord factors in such items into their rent amount.