Reposted from NationalMortgageProfessional.com Mon, 2013-09-23
Trulia has released its Summer 2013 Rent vs. Buy report, revealing whether buying a home is more affordable than renting in America’s 100 largest metropolitan areas. Looking at homes for sale and for rent on Trulia between June 1 and Aug.31, 2013, this study compares the average cost of renting and owning for all homes on the market in a metro area, factoring in all cost components including transaction costs, taxes, and opportunity costs.
In the last year, the mortgage rate for a 30-year fixed-rate loan rose from 3.75 percent to 4.80 percent, raising the cost of buying a home relative to renting. Home-ownership is now 35 percent cheaper than renting nationally, down from being 45 percent cheaper one year ago. Yet despite their current upward climb, mortgage rates will not tip the housing market nationally in favor of renting over buying until rates hit 10.5 percent nationally, given current home prices and rents.
While home-ownership is still more affordable than renting in all of the 100 largest metros, rising mortgage rates may soon turn the tide. Buying a home is now less than 10 percent cheaper than renting in San Jose and San Francisco—a dramatic shift from being 31 percent and 28 percent cheaper a year ago, respectively. Even in Detroit, where purchasing a home is a no brainer, buying has narrowed to being 65 percent cheaper than renting in 2013, versus being 70 percent cheaper in 2012. If rates keep rising and current rents and prices remain flat, San Jose will become the first housing market to tip in favor of renting once mortgage rates hit 5.2 percent.
“While it’s hard to believe after the recent spike in mortgage rates, it’s still more than one-third cheaper to buy a home than to rent,” said Jed Kolko, Trulia’s chief economist. “Recent mortgage rate and home price increases have made buying significantly more expensive than last year, but not enough to tip the math in favor of renting. This is because rates remain well below historical norms, and prices are still slightly undervalued, too.”