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Buying is still cheaper than renting

Buying a home comes out on top as a cost-saving strategy in these 100 metropolitan areas, but only under 3 conditions.

By Marilyn Lewis Mar 22, 2013 11:15AM

Even with home prices rising, it's 44% cheaper to buy a home than to rent one, says a newly released study by online real-estate company Trulia. The study compares the total cost of owning versus renting in each of the 100 largest metropolitan areas.


There's a "but," however. (Three buts, actually.) Buying comes out on top under these three conditions:

  • You will stay in the home seven years.
  • You itemize federal tax deductions at the 25% bracket.
  • Your mortgage interest rate is 3.5% or lower.
Otherwise, you might be better off renting, Trulia says.

Trulia also assumes that buyers use a 30-year fixed-rate mortgage and make a 20% down payment.


Image: Real estate agent (© Stockbyte/SuperStock)Suppose mortgage rates rise to 4.4%, or 5.5%? Suppose you don't have enough deductions to itemize and take advantage of the mortgage tax break? Or what if you only plan to live in your home for three years? Or five?


Trulia answers those questions for residents of the 100 largest metro areas with a cool interactive map. Change the interest rate, length of stay or tax deductions and see whether it's still cheaper for you to buy or better to rent in your city.


Interest rates are key

Overall, in these 100 metros, buying is 44% cheaper than renting, Trulia says. That's not much different from a year ago, when Trulia found buying 46% cheaper.


Why, you might wonder, is buying still relatively cheaper? Aren't home prices going up? They are, says the Federal Housing Finance Agency (.pdf file): 

For the 12 months ending in January, U.S. prices rose 6.5%. The U.S. index is 14.4% below its April 2007 peak and is roughly the same as the September 2004 index level. National home prices have not declined on a monthly basis since January 2012.

That's the biggest jump in home values since 2006, says Bloomberg. The increase is led by rising prices in the West, including recoveries in parts of Nevada, Arizona and California that had been hit hard by foreclosures.


But even though prices rising, buying remains more affordable because of the current super-low interest rates.


Freddie Mac's Weekly Primary Mortgage Market Survey shows that homebuyers and refinancers paid an average of 3.54% on a 30-year fixed-rate mortgage this week. That's a drop from 3.63% last week and up only slightly from historic lows last winter, including an unheard-of 3.32% average recorded by Freddie Mac on Nov. 21.


Rents are rising

Another reason buying remains relatively affordable: Rents are rising.


The demand for rentals has grown rapidly recently, some of it collateral damage from the housing bust. Demand is from:

  • Former homeowners who lost homes to foreclosure or short sales.
  • Unemployed people who were living with family and now are working and can rent.
  • Would-be homeowners who want to buy but haven't got a down payment or can't meet lenders' stiff requirements.
  • Former homeowners who've decided they prefer the freedom and flexibility of renting.

"Women are getting married later, having kids later and out of wedlock, all prompting them to seek the convenience of large, full-service rental apartment buildings," adds CNBC's Diana Olick.

"What drives demand for single-family homes is, 'Oh honey, I'm pregnant,'" says Buck Horne, a housing analyst at Raymond James.
But those words are being uttered less and less. Horne claims the shift in female education, marriage and fertility rates will drive rental apartment demand going forward.

Where buying matters most and least

The biggest savings for homebuyers are in the Midwest, where your money buys more home.


"Buying ranges from 19% cheaper than renting in San Francisco to 70% cheaper than renting in Detroit," Trulia says in a press release.


Other cities where buyers' edge over renters is slimmest are Honolulu, San Jose, Calif., and New York.


More on MSN Money:

Mar 22, 2013 11:43PM
Mar 24, 2013 9:45AM
What about the fact that rents keep going up.  The mortgage is fixed, the payment stays the same, only taxes go up.

Eventually, the house is paid off.  The rent contuses forever until you die.

Try renting and just living on SS.  Your life will suck.
Mar 24, 2013 8:37PM

OMG, just try to get ahead renting your whole life - DUH.  And if your house is only going to appreciate 2.2% per year after at least 5 years of virtually no building (mostly artificially caused) then you must be living in Ohio.  The typical r.e. market is poised to explode regardless of the lack of Congressional assistance.  In five years we will all see that Obama's time will be known for the extreme transfer of real estate wealth from the middle and lower class to the upper class.   A huge shift in wealth has already occurred thanks to DoddFrank virtually locking the average citizen out of the best opportunity in real estate in our lives (low interest rates and below cost prices).  A totally squandered opportunity - thanks ObamaDoddFrank - fools.  Grocery clerks, waitressess, teachers, laborers, etc. should have all been part of a short lived real estate recession - not; rather, we have an extended realty and lending recession all caused by Obama's over-reaction to the lending industry.  As for you renters, keep paying your rent.  See if your wage increases can keep pace with your rent increases.  In the mean time you will be buying a house for your landlord.  The landlord's call that a 401(k) plan that is not dependent on the stock market.

Mar 24, 2013 10:33AM
Independence is another reason to own your home (owners can choose not to renew your lease, who may visit you, etc.).
Mar 24, 2013 7:50AM
buying is still cheaper than renting.. thats BS. Once you buy a house, you dont own the house, the "house owns you". mortgage + principal + HOA fees + flood insurance + home security system + tornado insurance + pest control + expensive repairs + furniture + property taxes + homeowners insurance + utilities + commute costs.

Mar 25, 2013 1:16AM
Since real estate is poised to drop 20-30% more in the next year or two according to the top RE economist (Shiller) seems that renting is wiser right now for most people.

Also there are big "ifs" in this article. For example, he assumes you live in the house at least 7 years. Since the average American moves every 4-5 years seems like renting for most Americans is still the better choice.

Anyone try selling a house recently? I have and it's a Nightmare.

Sep 6, 2013 11:37AM
I have done an extensive qualitative research in this topic.  Taking into account all the factors involved in the final price of both options, only if you buy in a new developing zone, away from the city (small towns, new suburban areas, etc) then you will find true that buying is better than renting. However, in that case, you will have to take into account other expenses (gasoline, commuting time, etc). Currently, renting is cheaper for most of us.  I find that fact discouraging.
Mar 24, 2013 7:52AM
forgot to add "shrinking paycheck". and god help you if and when you want to sell it. I know friends who keep cleaning their house every weekend with 0 prospective buyers coming to see the house.
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