- Real estate data firm Trulia reported that in the U.S., on average, it is 23% cheaper for a millennial household to buy a home than to rent; however, in expensive markets like New York, that advantage will be lost if mortgage rates rise.
- According to Trulia, when comparing median costs of buying and renting, San Jose, CA, and Honolulu are the only U.S. cities where renting is more advantageous than buying.
- Trulia came to its conclusions by comparing down payment, property taxes, security deposits, expected home price, and rent appreciation, and assuming a 10% down payment and maximum five-year stay in the home.
As mortgage rates rise, there will be fewer cities in the U.S. where buying is more beneficial than renting, Trulia reported. However, Trulia economist Ralph McLaughlin noted, the double-digit mortgage rate environment of the 1980s was the last time that rent was, on average, the better option than buying in the U.S.
But for now, the cities where buyers are able to see a 40%-50% advantage in buying over renting are: Houston; Baton Rouge, LA; Fort Lauderdale, FL; Syracuse, NY; Miami; New Orleans; Tampa, FL; Detroit; Columbia, SC; Oklahoma City; San Antonio, TX; West Palm Beach, FL, and Dallas.
The residential industry has been keeping a close eye on rising mortgage rates, which will be affected by the Federal Reserve's coming rate hike decision. In September, the Fed opted to hold off on raising interest rates due to global economic turmoil and the slow pace of job gains in the U.S.
Some homebuilders fear an increase would deter potential buyers from making the move from renting to owning — thus reducing the number of potential buyers for their new properties. Trulia's report reaffirms that suspicion, as it shows that choosing to buy rather than rent could become less appealing for first-time buyers after the rise in interest rates.