The choice between renting and buying isn’t obvious in some American cities.
While most cities have clear-cut price advantages to either, some are in a sticky in-between where the benefits of renting or buying may come down to personal circumstances, according to a new study from Home Bay.
Home Bay analyzed the 50 most-populous metros based on their price-to-rent ratios. A ratio of 15 or lower means it’s better to buy, while 21 or higher means it’s better to rent. The national average is 18.
Pittsburgh, PA; New Orleans, LA; Chicago, IL; and Cleveland, OH, are the most affordable cities to buy a home in compared to their average rents, all with a ratio of 12.
For example, residents can save an average of $107 a month owning a home rather than renting in New Orleans.
West Coast pandemic hotspots are best for renting, with San Jose, CA, in the lead with a ratio of 38. It would take 14 years to save up for the typical home purchase price.
In San Jose, it would take nearly 40 years, making it the worst city to jump from renter to homeowner.
San Francisco (30), Seattle, WA (26), Salt Lake City, UT (25), and LA (25) round out the top five.
Renters save $174 a month on average, more than $2,000 a year, making it the more affordable option overall.
Home Bay’s study says home prices have increased 70% more than typical rent prices since 2016.
While renting is still cheaper than buying in most places, rents are within 20% of mortgage payments in 22 of the 50 cities analyzed. In these metros, residents may choose to rent or buy based on other factors than affordability. Some Americans choose to rent in order to avoid the costs of repairs, focus on travel, and have more flexibility in their lifestyle.
If interest rates were to hit an average of 4%, mortgage payments would become cheaper than rent in 30 cities in the study.
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