If you're preparing to enter America's piping-hot housing market as a buyer, you're likely very aware of how expensive it is to purchase a home. With owning a home out of reach for so many, renting can provide an affordable, if somewhat less satisfying, consolation prize (after all, who wants to have a landlord when you're in your 40s?).
But the uptick in rents across the country should cause you to reconsider whether sacrificing home ownership actually makes financial sense. A new study by the Urban Institute finds that in 17 metropolitan areas, it's actually cheaper to bite the bullet and buy a house than to rent one. By looking at the median income reported in each city and comparing it with the costs of putting down a 3.5% down payment on a median-priced home vs. renting a home, the study found it cheaper to buy in the following metropolitan areas:
|Metropolitan area||Percent of median income spent on mortgage payments with 3.5% down||Percent of median income spent on rent|
|New York-Newark-Jersey City, NY-NJ-PA||32.33||37.18|
|Tampa-St. Petersburg-Clearwater, FL||26.25||28.03|
Miami-Fort Lauderdale-West Palm Beach, FL
|Houston-The Woodlands-Sugar Land, TX||24.14||25.40|
Atlanta-Sandy Springs-Roswell, GA
|Minneapolis-St. Paul-Bloomington, MN-WI||20.31||21.20|
|St. Louis, MO-IL||17.08||17.62|
|San Antonio-New Braunfels, TX||23.88||24.10|
|Kansas City, MO-KS||18.47||18.67|
If you happen to have an allergic reaction to numbers and charts (perfectly understandable, but something you'll need to get over when trying to buy a house), here's a more concrete example using the data above to put things in perspective. If you bought a $175,000 house in Columbus, Ohio, and took out a 30-year fixed-rate mortgage with a 3.5% down payment (the smallest amount of down payment allowed with a Federal Housing Assistance loan), then your spending roughly 20% of your income on paying that mortgage. Assuming you earn $52,000 a year, close to the median income in Columbus, then that means $10,400 of your money is dedicated to mortgage payments. If you rented a three-bedroom house in Columbus, you would pay $11,029 a year in rent. The discrepancy is even larger almost 200 miles east, in Pittsburgh, Pennsylvania. Buying a house in the Steel City under similar circumstances means your mortgage costs you about $7,900 a year, while renting costs around $12,250 every year.
The decision between buying and renting a home doesn't solely boil down to how much money you spend—owning a home comes with other costs that renters dodge, including property taxes, home maintenance and homeowners insurance. Then again, the stability of owning a house in a neighborhood you love can be a priceless commodity to some buyers. You'll likely have to consider a whole host of questions—with financial ones being only part of the equation—about your long-term plans for the house, but at least you can make your decision armed with the knowledge that in some desirable cities, buying can be a better deal.