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10 Cities Where Buying is a No-Brainer
Posted under: Market
Conditions, Home
Buying, Rent vs
Buy | October 2, 2013 1:13 PM | 75,973 views | 45 comments
Many
of life’s transitions into adulthood are heralded by critical decision-making
points. What
major to select? What line of work to go into? Kids or no kids? I do - or I
don’t? The way we make each of these decisions is a major driver for the
direction of our lives.
of life’s transitions into adulthood are heralded by critical decision-making
points. What
major to select? What line of work to go into? Kids or no kids? I do - or I
don’t? The way we make each of these decisions is a major driver for the
direction of our lives.
One
of the most impactful financial and lifestyle decisions we ever have to make as
adults is this: whether to rent or buy our home. Recently, Trulia released the most sophisticated online Rent vs. Buy calculator ever,
to help smart would-be buyers understand the many economic factors that
influence whether it is cheaper to rent or to buy in their area, including line
items like:
of the most impactful financial and lifestyle decisions we ever have to make as
adults is this: whether to rent or buy our home. Recently, Trulia released the most sophisticated online Rent vs. Buy calculator ever,
to help smart would-be buyers understand the many economic factors that
influence whether it is cheaper to rent or to buy in their area, including line
items like:
-
how
long you intend to stay in the home, -
your
income tax bracket -
mortgage
down payment, term and interest rate -
property
taxes -
closing
costs or selling closing costs -
rental
and homeowners insurance, and -
utilities.
Because
smart buyers often factor in some future projections as they think through
the
decision of whether to rent or to buy a home, the calculator takes into account
a number of economic assumptions, like rental rate increases, home price
appreciation, inflation, the cost of renovations, and the opportunity costs of
not being able to invest the cash you’d need to spend on upfront costs to buy a
home.
smart buyers often factor in some future projections as they think through
the
decision of whether to rent or to buy a home, the calculator takes into account
a number of economic assumptions, like rental rate increases, home price
appreciation, inflation, the cost of renovations, and the opportunity costs of
not being able to invest the cash you’d need to spend on upfront costs to buy a
home.
You
can use our basic assumptions (e.g., 1% every year for home maintenance) or
customize them to your personal situation (e.g., 5% for the big kitchen remodel
you plan to do as soon as escrow closes).
can use our basic assumptions (e.g., 1% every year for home maintenance) or
customize them to your personal situation (e.g., 5% for the big kitchen remodel
you plan to do as soon as escrow closes).
Try
it, here: http://www.trulia.com/rent_vs_buy/
it, here: http://www.trulia.com/rent_vs_buy/
In
addition to launching this new, useful tool for those trying to make a smart
personal rent vs. buy decision, we recently released our Summer 2013 Rent vs.
Buy report, which did the math to uncover which cities make sense to buy, versus
rent, a home. Overall across America, buying is 35% cheaper than renting today
(versus being 45% cheaper than renting one year ago).
addition to launching this new, useful tool for those trying to make a smart
personal rent vs. buy decision, we recently released our Summer 2013 Rent vs.
Buy report, which did the math to uncover which cities make sense to buy, versus
rent, a home. Overall across America, buying is 35% cheaper than renting today
(versus being 45% cheaper than renting one year ago).
We
asked Trulia’s economist Jed Kolko how it’s possible that buying is cheaper than
renting, given the hot markets we keep hearing about nationwide. He said, “the
key reason is that both rates and prices are rising from very low levels and are
still below their long-term historical norms. But the rent versus buy math
depends on your local market, as rising rates and prices have pushed a handful
of metros very close to the tipping point when renting becomes cheaper.”
asked Trulia’s economist Jed Kolko how it’s possible that buying is cheaper than
renting, given the hot markets we keep hearing about nationwide. He said, “the
key reason is that both rates and prices are rising from very low levels and are
still below their long-term historical norms. But the rent versus buy math
depends on your local market, as rising rates and prices have pushed a handful
of metros very close to the tipping point when renting becomes cheaper.”
To
be clear, whether any individual buyer (like you!) rents or buys a home at any
given moment in time is a very personal life and financial decision, that should
be made based on your own personal vision for your life, career, family and
household needs and personal finances. For example, you might live in a place
where it’s more expensive to buy than to rent, but your personal income tax
situation and need for space might render it sensible to buy anyway.
be clear, whether any individual buyer (like you!) rents or buys a home at any
given moment in time is a very personal life and financial decision, that should
be made based on your own personal vision for your life, career, family and
household needs and personal finances. For example, you might live in a place
where it’s more expensive to buy than to rent, but your personal income tax
situation and need for space might render it sensible to buy anyway.
On
the other hand, you might live in a market where renting is much more costly
than owning, but the job prospects are bleak and you’d prefer to retain a
renter’s flexibility to move to another town for a better job.
the other hand, you might live in a market where renting is much more costly
than owning, but the job prospects are bleak and you’d prefer to retain a
renter’s flexibility to move to another town for a better job.
Here
are the top 10 cities across the country where buying is much cheaper than
renting - see how we calculated this list, here.
are the top 10 cities across the country where buying is much cheaper than
renting - see how we calculated this list, here.
10
Cities Where Buying is a No-Brainer
Cities Where Buying is a No-Brainer
|
#
|
U.S.
Metro |
Cost
of Buying vs. Renting (%),
Summer
2013 |
Cost
of Buying vs. Renting (%),
Summer
2012 |
Mortgage
Rate Tipping Point When Renting Becomes Cheaper Than Buying, Summer 2013 |
|
1
|
Detroit,
MI |
-65%
|
-70%
|
32.8%
|
|
2
|
Gary,
IN |
-58%
|
-63%
|
20.6%
|
|
3
|
Memphis,
TN-MS-AR |
-55%
|
-61%
|
19.0%
|
|
4
|
Cleveland,
OH |
-54%
|
-60%
|
20.0%
|
|
5
|
Kansas
City, MO-KS |
-53%
|
-57%
|
18.0%
|
|
6
|
Warren-Troy-Farmington
Hills, MI |
-53%
|
-61%
|
18.4%
|
|
7
|
Dayton,
OH |
-53%
|
-61%
|
19.5%
|
|
8
|
Grand
Rapids, MI |
-52%
|
-57%
|
17.7%
|
|
9
|
West
Palm Beach, FL |
-52%
|
-59%
|
17.1%
|
|
10
|
Akron,
OH |
-51%
|
-55%
|
18.2%
|
Note:
Negative numbers indicate that buying costs less than renting. For example,
buying a home in Detroit is 65% cheaper than renting in 2013. Trulia’s rent vs.
buy calculation assumes a 4.8% 30-year fixed-rate mortgage, 20% down, itemizing
tax deductions at the 25% bracket, and 7 years in the home.
Negative numbers indicate that buying costs less than renting. For example,
buying a home in Detroit is 65% cheaper than renting in 2013. Trulia’s rent vs.
buy calculation assumes a 4.8% 30-year fixed-rate mortgage, 20% down, itemizing
tax deductions at the 25% bracket, and 7 years in the home.
Understanding
how much cheaper or more costly it is to buy or rent in your town can serve as a
temperature check on the market. It can also help you vividly understand the
impact of mortgage rates on your own home buying timeline.
how much cheaper or more costly it is to buy or rent in your town can serve as a
temperature check on the market. It can also help you vividly understand the
impact of mortgage rates on your own home buying timeline.
Kolko
explains, “The biggest factor narrowing the gap between the cost of buying and
the cost of renting is rising mortgage rates – which affect the entire country.
In fact, the benefit of buying relative to renting shrank in nearly all of the
100 largest metros over the past year: only in Springfield,
MA
did the gap widen, from buying being 47% cheaper than renting last year to being
49% cheaper than renting today.
explains, “The biggest factor narrowing the gap between the cost of buying and
the cost of renting is rising mortgage rates – which affect the entire country.
In fact, the benefit of buying relative to renting shrank in nearly all of the
100 largest metros over the past year: only in Springfield,
MA
did the gap widen, from buying being 47% cheaper than renting last year to being
49% cheaper than renting today.
Nationally,
rising mortgage rates account for about 8 points of the 10-point shift from
buying being 45% cheaper than renting one year ago to being 35% cheaper now. The
other 2 points are due to prices rising faster than rents. (How did we figure
that out? If you used today’s prices and rents in the rent vs. buy calculation
but used a 3.5% mortgage instead of a 4.8% mortgage, buying would be 43% cheaper
than renting – 2 points less than last year.)”
rising mortgage rates account for about 8 points of the 10-point shift from
buying being 45% cheaper than renting one year ago to being 35% cheaper now. The
other 2 points are due to prices rising faster than rents. (How did we figure
that out? If you used today’s prices and rents in the rent vs. buy calculation
but used a 3.5% mortgage instead of a 4.8% mortgage, buying would be 43% cheaper
than renting – 2 points less than last year.)”
Kolko
continued: “Because fluctuating mortgage rates can affect the rent versus buy
math, we identified the mortgage rate “tipping point” at which renting becomes
cheaper than buying, given current prices and rents. If rates keep rising, San
Jose will tip first in favor of renting, at 5.2%. Already today, at 4.8%, buying
is just 4% cheaper than renting in San Jose. The tipping point is below 6% in
San Francisco and Honolulu as well, and below 8% in New York, Los Angeles, and
seven other major metros. Nationally, the mortgage rate tipping point is 10.5%,
and it’s 20% or higher in Detroit, Gary, and Cleveland.”
continued: “Because fluctuating mortgage rates can affect the rent versus buy
math, we identified the mortgage rate “tipping point” at which renting becomes
cheaper than buying, given current prices and rents. If rates keep rising, San
Jose will tip first in favor of renting, at 5.2%. Already today, at 4.8%, buying
is just 4% cheaper than renting in San Jose. The tipping point is below 6% in
San Francisco and Honolulu as well, and below 8% in New York, Los Angeles, and
seven other major metros. Nationally, the mortgage rate tipping point is 10.5%,
and it’s 20% or higher in Detroit, Gary, and Cleveland.”
With
that in mind, here are the 10 cities where buying a home is a closer
call.
that in mind, here are the 10 cities where buying a home is a closer
call.
|
#
|
U.S.
Metro |
Cost
of Buying vs. Renting (%),
Summer
2013 |
Cost
of Buying vs. Renting (%),
Summer
2012 |
Mortgage
Rate Tipping Point When Renting Becomes Cheaper Than Buying, Summer 2013 |
|
1
|
San
Jose, CA |
-4%
|
-31%
|
5.2%
|
|
2
|
San
Francisco, CA |
-9%
|
-28%
|
5.7%
|
|
3
|
Honolulu,
HI |
-10%
|
-24%
|
5.8%
|
|
4
|
Orange
County, CA |
-20%
|
-34%
|
7.0%
|
|
5
|
New
York, NY-NJ |
-21%
|
-31%
|
7.5%
|
|
6
|
San
Diego, CA |
-21%
|
-34%
|
7.3%
|
|
7
|
Los
Angeles, CA |
-21%
|
-32%
|
7.3%
|
|
8
|
Ventura
County, CA |
-22%
|
-33%
|
7.5%
|
|
9
|
Oakland,
CA |
-23%
|
-43%
|
7.5%
|
|
10
|
Sacramento,
CA |
-26%
|
-39%
|
8.2%
|
And
click here to download the full Rent vs. buy cost considerations for the 100
largest U.S. metro areas: (PDF)
or (Excel)
click here to download the full Rent vs. buy cost considerations for the 100
largest U.S. metro areas: (PDF)
or (Excel)
For
full details on how these were calculated, the 10 cities where renting is much
cheaper than owning and some insight on how your personal tax situation can
impact your rent vs. buy math, see Kolko’s deep dive post on the Rent vs. Buy
decision, here.
full details on how these were calculated, the 10 cities where renting is much
cheaper than owning and some insight on how your personal tax situation can
impact your rent vs. buy math, see Kolko’s deep dive post on the Rent vs. Buy
decision, here.
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