There are only four major U.S. metropolitan areas where it would be cheaper to buy a residence than rent the typical home, according to data from Redfin (NASDAQ:RDFN).
In Detroit, the typical home is 24% less expensive to buy than rent – the median estimated monthly mortgage payment for Detroit homebuyers is $1,296, compared with an estimated monthly rent of $1,697. In the other three metro areas, the ownership discount percentage is considerably lower: Philadelphia (7% ownership discount), Cleveland (4% discount) and Houston (1% discount).
For homebuying to become cheaper than renting in other parts of the country, mortgage rates would need to fall substantially. On average, Redfin determined the typical home costs 25% more to buy than rent in the rest of the nation’s major metro markets, with an estimated monthly mortgage payment of $3,385 and an estimated rent of $2,715.
“Buying a home often makes more financial sense than renting if you can afford a down payment and monthly mortgage because you’re building equity. When you own your home, your home pays you; when you rent, you and your home pay your landlord,” said Redfin Deputy Chief Economist Taylor Marr. “But buying isn’t a feasible option for everyone. Some people move around a lot, so renting might make more sense because they won’t be in their home long enough to build equity. Many others simply don’t have the money for a down payment—a situation that has become increasingly common due to rising mortgage rates and elevated home prices.”
“I wouldn’t encourage people to squeeze their budgets in order to buy a home when prices are falling and we’re teetering on a recession,” Marr added. “In the years leading up to the pandemic, it made sense for some homebuyers to break the rule that says not to spend more than 30% of your income on monthly housing costs, but these times are more risky, so it makes sense to be a little more conservative.”
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