Rent Vs Buy Renting Rallies But Buying Is Still Best

According to an article in Trulia this week:

Ever-rising prices for homes combined with flat or lower rents are changing the rent vs. buy equation in America’s biggest housing markets.

While it’s still a better deal to buy, the economic benefit has narrowed to the point that in some places, for some households, the decision to rent or buy a home may be too close to call. To calculate the financial cost of renting versus buying we assume that households stay in their home for seven years and can afford to put 20% down and a 30-year fixed rate mortgage when buying a home.

Under those conditions, the truth is that it is still cheaper to buy than rent in all of the 100 biggest U.S. metro areas, but that gap has dwindled recently as price growth outpaces rent growth. And in some markets small changes – a higher interest rate, less money down or a neighborhood’s characteristics – may make a rent vs. buy decision too close to call. Here are the key findings:

• It is still cheaper to buy than rent across the biggest 100 metros, ranging from just over 50% cheaper to buy than rent in Baton Rouge, La. to a mere 3.5% cheaper in San Jose, Calif.

• But, the financial advantage of buying versus renting has decreased in all of the 100 biggest metros from the same time last year due to the fact that mortgage rates have increased slightly, rent price growth has slowed or hasn’t changed in 93 metros, and home values have increased in all 100 metros.

• It soon could be cheaper to rent in San Jose (if interest rates rise to 4.7%), San Francisco (5.1%), and Honolulu (5.3%).