Many Americans are still being priced out of homeownership due to high interest rates and increasing home costs, according to a real estate finance expert.
A recent study by HomeAbroad, a financial and property tech platform, revealed that renting is now 57 percent less expensive than buying across the top 100 U.S. cities.
Only five cities were found to offer cheaper rates for buying: Grand Rapids, Michigan; Pittsburgh, Pennsylvania; Lakeland, Florida; Philadelphia, Pennsylvania; and Miami, Florida.
“Unfortunately, high interest rates and escalating home costs are still pricing many Americans out of home ownership,” Amresh Singh, HomeAbroad founder and CEO, told The Epoch Times.
“New developments also tend to be more expensive and are just out of reach for many people.”
Singh said it all comes down to the “buy-to-rent” ratio.
“You have to determine the amount of your mortgage payment and taxes and compare that to the cost of a similar property for rent,” he said. “If you’re going to be paying a similar amount of money for rent, then it makes more sense to buy. However, if your mortgage payments and taxes will be much higher than renting, then leasing would be the better option.”
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A small buy-to-rent ratio means that home ownership is a more viable choice, but a higher buy-to-rent ratio would make renting a better choice.
Singh also advocates for the “5-year” rule.
“If you’re planning to stay in the home for just 5 years or less, then renting might make more sense because you may need more time to build equity in the house,” he said. “If, on the other hand, you plan to spend 5 to 10 years in the home, buying would probably be the way to go as you can use that time to live in your investment and build wealth.”
Other factors to be considered are the location of the property, historical appreciation, population, job growth in the region, and quality of life offered. “It’s all about the potential appreciation of the home,” he said.
Another consideration for buying is being able to make the typically required 20 percent down payment.
“If you can’t put down 20 percent, you may have to bear the additional costs of private mortgage insurance, which will be added to your monthly mortgage payments,” Singh noted.
5 Cities Where Buying Beats Renting
Grand Rapids was named America’s least expensive place to buy a home compared to renting, with a cost difference of just 1 percent. According to the survey, the average monthly mortgage payments in Grand Rapids are $1,773, compared to the average monthly rent of $1,752. With a median home price of just $261,255 and a cost of living that’s 5.5 percent lower than the average U.S. community, buying a home there may be a better financial option than renting.
According to a recent report from SpaceWise, a storage firm, Michigan’s second-largest city is one of America’s best cities for families and also one of the most affordable places in the nation. The report indicates that the cost of living there is 10 percent below the national average and offers savings not only on housing but also on health care and groceries.
The job market is booming, especially in the health-care industry, and the city also offers an abundance of family recreation from Lake Michigan beaches to over 75 parks and nature trails throughout the city. For adults, there are a large number of art galleries, museums, music venues, and restaurants.
Pittsburgh’s buy-to-rent ratio is 11 percent. Monthly mortgage payments average $1,164, while the average rent is $1,453. With a median home price of $229,000 and a cost of living rated 8.2 percent lower than the average U.S. community, Pittsburgh was listed as the second-most-affordable location to purchase a home.
Lynne Bingham, leader of The Bingham Team at Howard Hanna Collier in Pittsburgh, was not surprised that the “Steel City” ranked high as one of the best places to buy vs. rent property.
“We have been seeing an influx of people into the city and suburban areas because of the growing technology and medical industries,” she told The Epoch Times.
Companies such as PayPal, Uber, and Google have been moving into the area, creating more jobs and attracting more people. “This includes some young doctors from Boston and Connecticut, as well as younger people from New York, Washington, and even Texas,” Bingham said.
While housing is affordable compared to many other American cities, property taxes tend to be on the higher side, she said. “Of course, they still may be a bargain for those coming from New York or other areas in the Northeast.”
Pittsburgh is considered a mid-sized city, with a population of over 300,000. It’s the second-most populous city in Pennsylvania, and the entire Pittsburgh metropolitan area is home to over 2.4 million.
Bingham noted that several sections of downtown Pittsburgh have undergone complete renovations, and some new luxury townhomes in the Strip District are garnering as much as $1.2 million. “It’s a great walkable area, and we’ve actually had a lot of seniors downsizing from larger suburban homes and moving into the area,” she said.
Lakeland and Philadelphia ranked third and fourth, respectively, with a 15 percent buy-to-rent ratio. Median home prices in Lakeland are $340,000, and in Philadelphia, they are $350,000.
While Miami is continuously noted as one of the country’s most expensive areas, its buy-to-rent ratio is fairly low at 18 percent. Average monthly mortgage payments are $3,223, compared to average rents of $2,721. Current median home prices are $515,000.
Most Expensive Areas to Buy
Conversely, some of the nation’s most expensive areas to buy are in the West and Midwest. San Jose, California, is ranked as the most expensive city in the United States to buy a home, compared to renting. With a buy-to-rent ratio of 131 percent, the average monthly mortgage payments are an astronomical $7,558, compared to average rentals of $3,268. San Jose’s median home price is listed at $1.3 million. The city’s cost of living is also 131 percent higher than the U.S. average.
With a buy-to-rent ratio of 118 percent, Los Angeles is the nation’s second-most expensive area to purchase a home. The median home price of $1.1 million carries a typical monthly mortgage payment of $6,499, compared to the average monthly rental cost of $2,984. The cost of living in Los Angeles is 61.7 percent higher than the rest of the country.
Although located in the heart of the Midwest, Omaha, Nebraska, has a 117 percent buy-to-rent ratio, making it much less expensive to rent than to purchase. Monthly rents average $1,362, while monthly mortgage payments average $2,962. Median home prices in Omaha are $392,450.
Rent-to-buy ratios in Austin, Texas, and Des Moines, Iowa, were both over 100 percent. Austin’s average rent is $1,688, while mortgage costs typically exceed $3,600 per month. In Des Moines, monthly rents average $1,270, compared to mortgage payments of $2,584.
Some areas of the country have more manageable cost differences between renting and buying, including Columbia, South Carolina; Tampa, Florida; and Palm Bay, Florida. In these areas, said Singh, deciding whether to rent or buy could be a more difficult choice.
Singh said that the decision to buy versus rent should also factor in estimated home repair costs, additional monthly payments such as home insurance or homeowner association fees, and whether the buyer can retain ample savings after making a 20 percent down payment and covering closing costs.
“If any of these areas present a challenge, renting could present a better option,” he said.
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