Remember the blue liquid filled Magic 8-Ball that was believed to tell your future? If you live in one of the biggest cities in the country and were to ask the 8-ball whether you should buy or rent, the answer would be to rent—every time.
Yes, renting is the most cost-effective option according to a new report from Bankrate as the typical home costs about 37% more to buy than to rent on a monthly basis. While home values have done nothing but trend upwards over the last few years—even if by just a few percentage points—rent prices have softened over the last year and the combination of home prices, elevated mortgage rates, and low available inventory is creating a strong headwind for those who want to move from renting to owning.
It is still a fact that most Americans (some 78% of respondents) want to take part in the American Dream and own their own home according to Bankrate’s Home Affordability Report. However, according to Bankrate, the factors holding non-homeowners back from buying a home revolve around affordability, with the most common responses in the report being lack of income (56%), home prices being too high (47%) and not being able to afford a down payment and closing costs (42%).
“Purchasing a home is a long-term commitment. Home price appreciation has slowed considerably and costs have risen dramatically since the days of 3%mortgage rates, so it’s going to take more time to break even on a purchase compared to renting,” said Skyler Olsen, Zillow’s Chief Economist.
To get a snapshot of the monthly cost differences between buying and renting, Bankrate analyzed typical monthly mortgage payments and typical monthly rents for all homes in the 50 largest U.S. metros as of February 2024.
- It’s cheaper to rent than to buy in all of the top 50 metros. The typical monthly mortgage payment of a median-priced home ($412,778, per Redfin) in the U.S. is $2,703, while the national typical monthly rent is $1,979 as of February—a 36.6% difference.
- The five U.S. metros with the smallest cost differences between renting and buying are: Detroit-Warren-Dearborn, Michigan (2%); Pittsburgh, Pennsylvania (5.2%); Philadelphia-Camden-Wilmington, PA-NJ-DE-MD (8.7%); Cleveland-Elyria, Ohio (11.6%); and Buffalo-Cheektowaga, NY (20.2%).
- The five U.S. metros with the widest cost differences between renting and buying are: San Francisco-Oakland-Berkeley, CA (180.7%); San Jose-Sunnyvale-Santa Clara, CA (162.3%); Seattle-Tacoma-Bellevue, WA (125%); Salt Lake City, UT (89%); and Austin-Round Rock-Georgetown, TX (86.5%).
- In 21 U.S. metros, the monthly cost of owning is at least 50% more expensive than the monthly cost of renting.
It’s cheaper to rent than to buy in all major U.S. cities
Hands down, housing is generally expensive whether you rent or buy, but the current market tips in favor of renting. According to Bankrate’s analysis of Redfin and Zillow housing data, it’s cheaper to rent than to buy a typical home in all 50 of the largest metropolitan areas. In 21 metros, the typical monthly cost of owning is at least 50% more expensive than the typical monthly cost of renting.
On a national basis, the typical cost of owning is 37% higher than the typical rental. The typical monthly mortgage payment of a median-priced home ($412,778, per Redfin) in the U.S. is $2,703 as of February, while nationwide typical rent landed at $1,979 in February.
The fact that it’s cheaper to rent in all 50 metros is a reflection of broader housing market trends that are playing out. Those being housing prices are on an ever-increasing climb, mortgage interest rates are elevated (currently some 7.33% as of mid-April), and the lack of inventory is a relentless furnace propping up home prices.
That being said, renting is not exactly affordable either
Renting, the primary mode of housing for low-wage earners, young adults, immigrants, and people of color are also climbing quickly, but not as fast as housing. Asking rents have soared since the beginning of the pandemic, growing nearly 30% between early 2020 and February 2024, according to Zillow’s Observed Rent Index.
Rents surged in 2021 and 2022 after pent-up demand for housing exploded with easing COVID-19 restrictions. Landlords hiked up prices as many young Americans moved out on their own for job opportunities and people flooded back into midsize and large metropolitan areas. What were some of the more affordable places in the country—specifically in the Southwest and Sun Belt, including Austin, Texas, and Cape Coral, Florida—quickly have become much less affordable in recent years, given demand.
“The long-term trend is that people seem to like the Sun Belt, probably because it’s sunny down there,” said Daryl Fairweather, Chief Economist for Redfin. “Those places have become more expensive since the pandemic because of how many people are moving in there.”
In Seattle, for example, a typical home costs roughly 125% more to own than to rent on a monthly basis. Bankrate’s analysis also found renting is more affordable in the short run in metros with lower living costs, such as Detroit or Pittsburgh, but the differences between renting and buying costs are much smaller, making it financially easier to switch from renter to homeowner status. In Detroit, for example, a typical home costs only 2% more to own than to rent on a monthly basis.
Click here to see Bankrate’s data in its entirety, including metropolitan areas with the biggest gaps between renting and buying and also the smallest.
