In America’s 100 largest metropolitan areas, buying a home is cheaper than renting, with homeownership affordability at its highest in Detroit, Trulia’a Summer 2012 Rent Vs Buy report showed.
The study took into consideration all cost components such as transaction costs, taxes and opportunity costs to compare the average cost of renting and owning.
In Detroit it makes good financial sense to own a house than rent. The monthly cost of homeownership in Detroit is $349 compared to $1149 as monthly cost of renting. Gary and Oklahoma are the other two metros topping the house ownership affordability chart.
Honolulu has the lowest homeownership affordability statistics. Here it is 24 percent cheaper to buy a house than renting, as against Detroit’s 70 percent. San Francisco, San Jose, New York and Los Angeles are other metros where affordability is at its lowest.
“Homeownership is cheaper than renting in all of the 100 largest metros, by a wide margin,” Jed Kolko, Trulia’s chief economist, said in a statement.
“Despite the recent price rebound, rents continue to rise faster than prices, and mortgage rates are near record lows. Homeownership makes the most financial sense for people whose strong credit scores let them snag the lowest mortgage rate and who get the biggest benefit from deducting mortgage interest and property taxes from their income taxes.”
Meanwhile, mortgage rates and the number of years a person stays in the house matter when deciding whether to rent or buy.
For instance, the report shows that in the New York metro area, staying in a home for five years, with a 4.5 percent mortgage rate and not itemizing one’s tax deductions will make homeownership three percent more expensive than renting, instead of being 31 percent cheaper.
In Atlanta owning a home is 40 percent cheaper compared to renting. This is despite a higher mortgage rate, not itemizing and shorter time horizon, the real estate information service provider stated in the report.
Explaining why people aren’t buying house in the current economic conditions, though it makes more financial sense, Kolko said that not everyone home buyer is able to take advantage of today’s affordability.
“It takes years to save enough for a down payment, and it takes a high credit score to even qualify for a mortgage, let alone to get the best rate. In the recession, many people found it harder to save – and harder to keep up their credit scores.”
For a better look at the current market trends, real estate service provider, Zillow, in association with the University of Southern California Lusk Centre for Real Estate is hosting a housing forum in California on buying and renting.
The event will be held on October 12 at San Francisco’s Palace Hotel. Talking about the event, Richard Green, Lusk Chair in Real Estate at USC, said that “with rising rents and historically low mortgage rates, owning a home appears to be very appealing.
But underwater borrowers are reluctant – or unable – to sell, tying up supply in a high-demand environment. We look forward to discussing the implications of these factors on the housing market."