Photo: VV Nincic/Flickr
The verdict is in and the housing powers that be have spoken, or at least real estate site Trulia. According to their latest report, it is only marginally cheaper to buy a home than rent in San Francisco and San Jose.
Trulia’s calculations were based on the assumption that the individuals would stay in their home for at least seven years, make a 20 percent down payment and take on a 30-year fixed rate mortgage.
In San Jose, where the median price of a home is $977,918 and the average rent is $3,500, it is merely 3.5 percent cheaper to buy. San Francisco’s average home price is an eye-popping $1,142,164, while its average monthly rent works out to $4,100; this means that buying a home is 8 percent more affordable than renting.
While it’s still cheaper to buy rather than rent in all of the 100 largest metropolitan areas in the United States, the gap between renting and owning is shrinking. Both rental and home prices have increased over the past four years, however, home prices have escalated more quickly. This is partly due to shifting mortgage rates — since 2013, national mortgage rates have jumped up and down, fluctuating between 3.7 and 4.5 percent. That’s a hefty rate hike when considering the amount of the loan.
On the other side of the spectrum, Baton Rouge, Philadelphia, New Orleans, Columbia and Fort Lauderdale ranked as the most advantageous markets for individuals looking to buy rather than rent. There were no West Coast cities in the top ten “best buy” markets, unsurprising when you consider that seven out of the top ten cities where buying outweighs renting by the slimmest margin are on the West Coast, with two in Hawaii.
If these margins become even slimmer, then buying will not be seen as a wise financial decision and home prices in those West Coast cities could potentially suffer. Trulia also points out that if the Trump administration decides to raise the standard deduction, buying a home could become less advantageous than renting, especially for middle-income earners.
As Trump continues to impose new policies, we’ll see how the buy versus rent dynamic shifts.