Monthly starter home payments are less than rent in over half of the nation's 50 largest metros. Here's where buying is the best deal.
In today’s overheating housing market, it may seem easier or cheaper to rent instead of making a run at buying a home.
But that sentiment can be misleading. And costly.
Monthly payments on a starter home (2 bedrooms or less) are lower than rent in 26 of the 50 largest metros in the US, according to Realtor.com. That’s up from 21 out of 50 metros in July 2021.
In January, the national median rent for two-bedroom units increased 19.2% year-over-year to $2,000. In seven metro areas, rent increased by 30% or more. In the most extreme case, rent in Miami-Fort Lauderdale-West Palm Beach, Fla increased 52.4% year-over-year, addingan addition $996 to the median rent.
While that’s certainly not the norm, it’s a reminder that renters are truly at the mercy of the market.
Best markets to buy instead of rent
With a fixed monthly payment, buying a home is a surefire way to ditch the unpredictability of rent increases. On average, monthly mortgage payments are $323 lower than the cost of renting in the 26 markets that favor buyers.
That savings increases to an average of $481 per month in the top 10 markets that favor buyers over renters.
In terms of dollars, Pittsburgh leads the way with an average monthly savings of $585 after year-over-year rent increases (18.6%) outpaced the monthly cost to buy (3.2%) by a wide margin.
Over the course of 2022, Pittsburgh starter-home owners would spend $7,020 less than renters. That yearly savings will only increase if rent continues to rise and could be put toward upgrades to improve the value of their home.
Percentage-wise, starter-home buyers in Birmingham-Hoover are paying 44.3% less than renters. That’s due in part because rent increased 18.6% year-over-year while the monthly mortgage payment decreased 5.95%.
Metro$ difference (buy-rent)% difference (buy-rent)Birmingham-Hoover, AL-$533-44.3%Cleveland-Elyria, OH-$516-38.9%Pittsburgh, PA-$585-38.3%St. Louis, MO-IL-$483-37.3%Detroit-Warren-Dearborn, MI-$449-33.3%Baltimore-Columbia-Towson, MD-$531-30.0%Virginia Beach-Norfolk-Newport News, VA-NC-$409-27.2%Orlando-Kissimmee-Sanford, FL-$493-27.1%Tampa-St. Petersburg-Clearwater, FL-$527-25.5%Louisville/Jefferson County, KY-IN-$284-23.7Data from Realtor.com.
The Florida metros of Orlando-Kissimme-Sanford and Tampa-St. Petersburg-Clearwater are interesting because while the monthly cost to buy is up more than 20% in each market, rents increased 34.8% and 37.5%, respectively, in the last year.
Best markets to rent instead of buy
Renting versus buying is split nearly 50-50 in the 50 largest US metros. In some markets like New York-Newark-Jersey City, renting can save you nearly $1,500 per month compared to buying a starter home.
Here are the top 5 markets for renting over buying:
MetroMedian RentMonthly Buy Cost$ Difference (Buy-Rent)Austin-Round Rock, TX$1,769 $3,115 $1,346New York-Newark-Jersey City, NY-NJ-PA $2,700 $4,115 $1,415San Francisco-Oakland-Hayward, CA $2,975 $4,436 $1,461San Jose-Sunnyvale-Santa Clara, CA $3,062 $4,541 $1,479Seattle-Tacoma-Bellevue, WA $2,086 $2,908 $822Data from Realtor.com.
As buyers migrate inland from major coastal metros and tech hubs, they’re more likely to find areas where buying substantially reduces monthly payments (while building home equity) and provides an exit ramp from the rent rollercoaster.