Homeownership has long embodied the American dream. But for many, it isn’t the most affordable option these days. Or the one that ultimately makes the most financial sense.

Brass tacks: In most of the country, it remains cheaper to rent than to buy the same square footage. But, of course, renters are at the mercy of their landlords and aren’t building wealth that can be tapped in an emergency or passed down to future generations. And when you factor in the current tsunami of extreme real estate price fluctuations on both sides and economic uncertainty across the board, the eternal rent vs. buy decision has become a whole lot trickier in 2023.

Whether it makes more financial sense to rent or buy depends a lot on where in the U.S. someone lives. So the Realtor.com® economics team identified the places where folks can save the most money by renting—and where it makes more sense to buy.

In areas where it’s better to buy, mortgage payments are often lower than market rents if buyers can cobble together the needed down payment and closing costs.

“The areas where renting is better tend to be pricey markets for both renters and homebuyers, but especially homebuyers,” says Danielle Hale, chief economist at Realtor.com. “These in-demand markets tend to be larger cities with a good share of the workforce powered by the tech industry, which has until very recently been a huge growth engine for these markets’ economies and housing.”

“These are high-value markets,” says real estate agent Roger Perry, of Rodeo Realty in Los Angeles. “But the bottom line is you either pay your mortgage or you pay someone else’s.”

However, in some of the more affordable real estate markets, renters might find they will save cash each month by becoming a homeowner.

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Watch: The 3 U.S. Cities Where Rent Prices Have Dropped the Most

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As of December of last year, the typical renter living in the 50 largest U.S. metros would shell out about $800 more a month to purchase a starter home than to rent a similar abode, according to a recent Realtor.com rental report.

It’s cheaper to rent in 45 of the 50 largest metros. And that’s up from just 30 metros last year. (Metros include the main city and surrounding towns, suburbs, and smaller urban areas.) Some of the blame for the widening gap can be put on higher mortgage interest rates, which have made buying a home so much more expensive.

Rates had been in the low- to mid-3% range for 30-year fixed-rate loans around this time last year, according to Freddie Mac. Now they’re just above 6%.

Of course, homeownership is investing in an asset that folks get to live in. That’s part of the trade-off: Buying a home can be more expensive, but the mortgage builds equity for the homeowner over time.

“If you’re a renter trying to decide if it’s better to sign another lease or buy a home this year, market conditions are one factor to consider, but it’s far more important to think about what you want and need from a home,” Hale says. “How much flexibility or stability do you see fitting with your lifestyle over the next five to seven years?”

It’s all a lot to think about, but we’ve done some of the hard number crunching for you. (And to help figure out your own costs, check out the Realtor.com rent or buy calculator.)

To come up with our rankings, we calculated the monthly cost for a median-priced studio to two-bedroom home listing (starter homes) in the 50 largest metros with a 7% mortgage rate—including property taxes, insurance, and homeowners association fees. Then we compared the median rental price for a similarly sized home in the same area.

We limited our list to just one metro per state to ensure some geographic diversity.

Austin, TX

Austin, TX

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Median monthly rent: $1,659
Median monthly cost for buyers: $3,672

Austin has become a scorching, bellwether real estate market over the past several years, drawing newcomers from all over the country—and real estate prices have skyrocketed accordingly. In the early part of 2021, home prices in the Texas capital were climbing more than 40%, year over year.

Prices have stabilized, but they’re still far higher than before the COVID-19 pandemic. With mortgage rates up, the monthly fees on a so-called starter home are beyond the budgets of many first-time buyers—at more than double what it would cost to rent a home.

“Owning in Austin has gotten more expensive fast,” says Brad Pauly, the broker/owner of Pauly Presley Realty in Austin. Pauly looked at a home recently and figured that the monthly cost was up $1,000 compared with one year earlier.

“You expect to pay more for ownership than for renting, but you also bet on the home continuing to appreciate,” he says.

Rental prices began to fall in Austin for the first time in 20 months in November, after steady price increases. Now, for just under $1,700, you can rent a posh, one-bedroom condo near the University of Texas at Austin.

San Francisco, CA

San Francisco, CA

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Median monthly rent: $2,943
Median monthly cost for buyers: $5,798

San Francisco has long been one of the most expensive cities in the nation to buy a home, so it’s little wonder that rental prices offer a much lower barrier to entry.

The monthly cost to buy a starter home in San Francisco is now nearly $3,000 more than the cost to rent a comparable home. It would almost be cheaper to rent two homes than to buy one.

The San Francisco rental market was hurt by the pandemic when renters moved out of the city to cheaper parts of the country. But prices are rising again. And while San Francisco has the biggest savings for renters in California, the monthly rental costs are less than the monthly purchase costs for several metro areas in the state.

In Silicon Valley’s San Jose, just to the south of San Francisco, renters can expect more than $2,600 in monthly savings compared with buying. Renters will save around $2,100 in Los Angeles and more than $1,200 in the state capital of Sacramento.

“In the greater Los Angeles area, it is hard to find a single-family home for less than $1 million,” says Los Angeles real estate agent Roger Perry.

Seattle, WA

Seattle, WA

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Median monthly rent: $2,059
Median monthly cost for buyers: $3,831

Seattle has the biggest year-over-year increase in monthly homeownership costs of any metro on the list. The median mortgage payment for a starter home in the Emerald City is now about 57% more expensive than it was just one year ago.

The metro is popular with tech workers as it’s the headquarters of Amazon and Microsoft. How recent layoffs at these high-profile companies will change the real estate landscape has yet to be seen—if there are any discernible impacts at all.

The average rent payment of just above $2,000 will get a one-bedroom apartment close to downtown or a two-bedroom apartment in North Beacon Hill, a few miles south.

Boston, MA

Boston, MA

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Median monthly rent: $2,868
Median monthly cost for buyers: $4,965

Boston has been one of the primary upper-end Northeastern real estate hubs for quite some time, supported by a large population, powerhouse universities, and thriving tech and finance industries. The historic brownstones and new construction throughout the city are popular with both renters and buyers.

However, while rental prices in Boston have risen by a little more than 6% over the past year, the monthly cost to own a home in Boston has gone up by more than 30% compared with one year earlier.

A Back Bay studio apartment goes for around $2,800 right now. For the same price, renters can get a three-bedroom home in Dorchester, south of downtown Boston.

Portland, OR

Portland, OR

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Median monthly rent: $1,750
Median monthly cost for buyers: $2,996

It’s substantially cheaper to rent than to buy a home in Portland, but compared with other cities on this list, it’s still a relative bargain.

“This is the least expensive, dense urban city on the West Coast,” says Kim Minasian Sparks, the principal real estate broker and rental broker at Team Arrive Portland at Neighbors Realty.

Monthly costs for buyers are skewed somewhat by the fact that even first-time homebuyers have had to offer larger down payments in order to beat out the competition.

For about the median rent in Portland, you can find a one-bedroom apartment right next to the Willamette River.

Memphis, TN

Memphis, TN

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Median monthly rent: $1,258
Median monthly cost for buyers: $847

With the city’s relatively affordable homes, Memphis buyers, on average, will be saving more than $400 compared with renters. That’s even with a significant increase in the cost to buy here, with the monthly starter home prices rising by a whopping 58%, year over year.

Joe Spake, a broker at InCity Realty in Memphis, says he sees a lot of new apartment buildings going up, but the newer units are going for a higher price point.

“They’re building like crazy, but they rent for a lot of money,” he says, “[About] $1,600 a month for a two-bedroom apartment isn’t out of the ordinary.”

Buyers can find a three-bedroom home with an estimated monthly cost of under $1,000 in the suburbs of northeast Memphis.

Pittsburgh, PA

Pittsburgh, PA

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Median monthly rent: $1,445
Median monthly cost for buyers: $1,097

In Pittsburgh, homebuyers will save about $350 compared with renting—and that’s even with the 21% year-over-year monthly cost increase for buying a home.

This anchor city of the Rust Belt saw significant out-migration after the steel industry receded in the late 20th century, leading to overall real estate stagnation. But unlike some other urban metro cores, it’s seen a revitalization—and gentrification—of its downtown.

For less than an estimated $900 per month, a homebuyer in Pittsburgh can get a two-bedroom home in the Manchester neighborhood, which is within walking distance of the Ohio River.

Birmingham, AL

Birmingham, AL

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Median monthly rent: $1,149
Median monthly cost for buyers: $879

Alabama’s capital city and one of the hubs of the South, Birmingham is another very affordable place for homebuyers, even in today’s rough real estate market.

The monthly cost for a starter home is just under $900. And that’s after a nearly 20% increase compared with one year ago. The cost to rent the same home here is about $1,150. Together, that all means saving about 25% by buying instead of renting.

A two-bedroom condo in the heart of Birmingham’s Second Avenue North neighborhood comes with an estimated $1,200 monthly purchase cost.

St. Louis, MO

St. Louis, MO

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Median monthly rent: $1,211
Median monthly cost for buyers: $1,128

St. Louis has seen the monthly cost to own a starter home rise 34% in the past year. But mortgage payments are still a hair cheaper than renting.

For about $1,050, a buyer can get a three-bedroom house in the Clifton Heights suburb west of downtown St. Louis, or a two-bedroom condo in the centrally located Lafayette Square neighborhood.

Baltimore, MD

Baltimore, MD

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Median monthly rent: $1,749
Median monthly cost for buyers: $1,684

As in St. Louis, owning a starter home in Baltimore will save money compared with renting, but the margin is narrow. It pencils out to a monthly median savings of about $65, or $780 per year.

Jason Lerner, the vice president and development manager at George Mason Mortgage in Baltimore, says even with the savings buyers can still get there, many first-time homebuyers took a step back when interest rates went up.

“I’ve had a lot of potential buyers leave the market,” he says about the past year.

But as demand receded, Lerner says, sellers are negotiating more, putting buyers who can handle the current mortgage rates back in a position to look again. Plus, Lerner points out that there are first-time homebuyer programs that can help with down payments and reduce the barriers to ownership.

The post The Cities Where You’ll Save Money Renting in 2023—and the Ones Where Buying a Home Is Cheaper appeared first on Real Estate News & Insights | realtor.com®.


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