Photo: Trish Hartmann/Flickr
The savings from falling average US mortgage rates have continued to be offset by rising national home prices. However, even with the looming threat of an increase to the national average mortgage rate at the end of the year, buying will remain slightly cheaper than renting for many Americans.
Home prices have risen nearly 6 percent year-over-year, compared to just a 3.5 percent increase in the average rental price from last year.
Meanwhile, national average mortgage rates have dropped over the last year from 3.9 percent to 3.7 percent, according to new data released yesterday by online search portal Trulia. Low mortgage rates have helped make buying a home today the best deal since 2012.
Buying a home remains a cheaper option for Americans able to put down 20 percent and plan on staying in their home for seven years, says Trulia. Nationally, it is 37.7 percent cheaper to buy this year. This was up slightly from 37.2 percent last year.
This year’s percentage is also below the 40.7 percent recorded in 2012, when the national average mortgage rate was 3.4 percent.
In fact, national average mortgage rates would “have to double to make renting a cheaper alternative than buying.” However, home prices would “only” have to increase by 67 percent to make renting the cheaper option.
And, in some already high priced metros, the increases necessary for renting to become more affordable than buying are lower. For example, in San Jose, CA, home prices would need to rise by 45 percent or the national mortgage rate would need to see a 1.6 point increase to make renting cheaper than buying.
To determine the cost effectiveness of buying compared to renting, Trulia looked at the median rent and home value in March 2016 in 100 US metros. It then calculated the initial monthly costs of renting and buying, including mortgage payments, taxes, and insurance. Finally, it calculated the future total monthly costs for both owning and renting, taking into account projected inflation as well as rent appreciation.
Buying was also cheaper than renting in each of the 100 large US metros Trulia studied. Eight of the top 10 metros where buying offered the largest financial advantages were located in the South. The remaining two metros were located in the Northeast.
Miami, FL and West Palm Beach, FL offered the highest savings for buyers compared to renters. It was 53.2 percent cheaper to buy in Miami and West Palm Beach. Miami recorded a median home price of $259,527 and a median rent of $2,000. The median home price in West Palm Beach was $241,509, and the median rent was $1,950.
At 52.9 percent, Houston, TX ranked as the third US metro where buying was cheaper than renting. Here, the median home price was $176,513 and the median rent was $1,575.
Philadelphia, PA and Syracuse, NY were the only two metros in the Northeast, where it was 50.8 and 51 percent cheaper to buy than rent.
The savings weren’t as great in Honolulu, HI. It was only 17.4 percent cheaper to buy than rent in Honolulu — the lowest of the 100 metros in the study.
Five of the 10 metros that had the fewest financial advantages to buying over renting were located in California — San Jose, Sacramento, San Francisco, Oakland and Ventura County.