With rising interest rates, growing home prices, and high rental costs, it can be difficult to decide whether to buy or to rent—in terms of affordability.
According to a recent report by the Urban Institute’s researchers Sarah Strochak and Sheryl Pardo, affordability between rent vs. buy is different across the country. Their research found that in 17 of 33 large metropolitan statistical areas (MSAs), it’s cheaper to own a home, putting 3.5 percent down, than it is to rent. In 16 of the 33 MSAs, it’s cheaper to rent than to buy a home.
“In over half the MSAs we studied, owning a home was more affordable than renting on a monthly basis, and in nine of these cities, homebuyers could save more than 3 percent of their incomes,” the authors noted.
The city with the largest negative rent gap in the U.S. is Miami—where the median borrower would save 11 percent of their income if they bought the median-priced home with 3.5 percent down instead of renting.
However, it’s not cheap to buy a home in the city that ranks 11th in mortgage affordability nationally, with a median mortgage payment that consumes 32 percent of the median income. Since Miami ranks the second-most-expensive city for rental housing with the median rent consuming 42 percent of the median income—homeownership is still the best option.
Other cities with high rental costs but more affordable homes include Chicago, Orlando, and Tampa. Chicago’s rent gap is about 6 percent, while Orlando and Tampa have rent gaps of 3 and 5 percent, respectively.
The most expensive city for homeownership, San Francisco, serves as the best example of an MSA where renting is the more affordable option. According to the data, monthly payments for a mortgage on the median-priced house with 3.5 percent down takes up 80 percent of the median borrower’s income. In comparison to renting, the borrower making the median income would pay 37 percent of that income in rent—representing almost a 43 percent gap.
The West Coast provides other cities where renting is more viable. In Seattle a borrower who buys a home with a low down payment there could pay an additional 8.6 percent of their income on housing.
Six California cities have rent gaps that exceed 4 percent, including Los Angeles, Riverside, Sacramento, San Diego, San Francisco, and San Jose. Other cities where renting is notably cheaper include Las Vegas and Portland.
You can view or download the full report by clicking here.