Thursday, September 13, 2012

It’s Now Cheaper to Buy Rather Than Rent in Top 100 U.S. Cities

I generally believe it is better to rent than to buy a house at almost all times. However, given current conditions, I believe it is one of the rare times when it makes sense to buy, especially if you plan to stay in your present locale for many years.

Housing prices are starting to climb and the overhead supply of houses is shrinking. On top of this we have Bernanke printing money and buying mortgage assets.

Bottom line: The financial reasons to buy a house are at their best ever and supply
is shrinking.

Over the last few weeks these are some of the things I have written in the EPJ Daily Alert:
Lenders have doled out $38 billion in private jumbo mortgages during the second quarter of 2012, up 65% from 2011. This is a further sign the housing market is recovering. Keep in mind that this is occurring without much help in the way of money printing from the Fed. If the Fed starts printing, the housing market may truly start to boom. It's time to start taking a look at REITS and home builders. And if you are in the market for a house, start picking up your search. You may only have between now and the election to get the best deals.


HOUSING MARKET--The worst is likely over and the market from here will
react to Fed printing. This is an ideal time to buy a house---especially if you can lock in long-term current mortgage rates.
Here are more numbers that highlight why buying now makes sense.

Trulia Research released today its Summer 2012 Rent vs. Buy Report, which provides the inside scoop on whether buying a home is more affordable than renting in America’s 100 largest metropolitan areas. Looking at homes for sale and for rent on Trulia between June 1, 2012 and August 31, 2012, the study compares the average cost of renting and owning for all homes on the market in a metro area, factoring in all cost components including transaction costs, taxes and opportunity costs.

With a 3.5 percent mortgage, itemized deductions at the 25 percent federal tax bracket, and a seven-year time horizon, home ownership is cheaper than renting in all of the 100 largest U.S. metros by a wide margin, according to the study.

Still the advantage is different across the country. Buying a home is 24 percent cheaper than renting in Honolulu, 28 percent cheaper in San Francisco, and 31 percent cheaper in New York, but it is 70 percent cheaper in Detroit.

Top 5 Metros Where Homeownership Affordability Highest
U.S. Metro
Monthly cost of homeownership ($)
Monthly cost of renting ($)
Difference ($)
Difference (%)

Top 5 Metros Where Homeownership Affordability Lowest
U.S. Metro
Monthly cost of homeownership ($)
Monthly cost of renting ($)
Difference ($)
Difference (%)


  1. No doubt that prices are right but I believe mobility will be a key asset in the coming years as more and more municipalities go under.

  2. Why not identify the housing mkt as a bubble?

    Bernanke, et. al. have forced not just legitimate homeowners into housing, but especially pushed investors/speculators into buying-up houses, both via QEs, but esp. below-mkt interest rates.

    Just like stocks in 2000, housing circa 2008, cheap money has created another bubble. Why think you will know when to exit, before the correction period?

  3. If you still can't put up a decent sized down payment then now is probably not the time to be loading up on debt. Build up your nest egg first and pay off a decent chunk of the house before you decide to take out such a loan.

  4. I've never understood the hostility toward owning homes from the Austrian contingent. I do understand there are maintenance issues (which are rolled into rental rates as well). I also get the mobility argument (although moving out of a rental home is no cup of tea either). However, if you're in a high tax bracket -- which isn't hard to do in places like California -- the deductions wind up being close to 50% (38% + 10% in California). Also, it's a hard asset that tends to ride with inflation even if it is not specifically in a real-estate bubble.

    Also, if you have a fixed-rate loan, the Fed makes your principal drop in real terms at the expense of those who hold dollars. When you rent, you're on the other end of the inflation ride. Your rent keeps going up. There's an opportunity cost of the downpayment, but there's also enjoyment to be had if you own a home you really like.

    Overall, I think home ownership is at least even with rental. I just don't see the major advantage of renting.

    1. "I just don't see the major advantage of renting."

      Ever had bad neighbors move in next door?

      Ever see a hog lot get constructed upwind?

      When the furnace goes out, the roof leaks, or the house needs painting, renters just call the landlord and let them pay and spend time on it. Or maybe you like spending time repairing a roof rather than going to the family outing?
      A sudden expense like those are things a renter seldom deals with. I'd call that major.

      Also, I've never had a rent increase in the entire time I've been renting (Years and Years) and no, I'm not in a rent controlled area.

      "but there's also enjoyment to be had if you own a home you really like."

      Do you really "own" your home or do you pay rent in the form of taxes and a house payment you may not be able to escape.
      Lots of people have lost a TON of money from dropping real estate prices and job losses, not me.

    2. You've NEVER had a rent raise? Well, that is something to brag about. However, the vast majority of renters see their rent go up regularly. I had one landlord for 20 years who called it a "cost of living increase" and tied it to the consumer price index. But when the CPI stopped going up, surprise, the rent increases kept coming anyway. I bought 3 years ago & there is nothing like it. If you can afford it without stress, now is the time! All time low interest rates and deflated house prices together- this opportunity may never come again.

  5. Is there a chance that the mortgage tax deduction is eliminated in the near future? I figure that would re-implode the housing market so it is likely a sacred cow.

  6. Lets say you buy a house and get a 3.5% interest rate but the price on your home slowly drops for the next ten years as the economy worsens, and also you pay more property taxes because the property tax rate goes up even as the assessment drops keeping the payement the rising. Then it won't make sense to buy. And thats what I believe is happening. You never really own the house anyway because of property taxes.

  7. they are creating another bubble for Gods sake, not only that if people dont have jobs how you gonna sell those houses. And people with jobs are not feeling good about the economy long term. ANd yes you still have all the other expenses associated with owning, the best way in my opinion is to rent with an option to buy. At least you arent stuck either way, if market drops you give 30 day notice and your out, if it climbs you excercise your option or sell your option

  8. If you can get a long term option to buy you can many times lock in your rent, maybe for about three years, the key is to think like a business person and not a consumer rent to own is a great technique that can be used today because it is a win win for both parties.

  9. How does this change when mortgage deductions vanish in 4 months?

  10. I never got mortgage deductions and do not get any kind of tax deductions or any food stamps or get govt. program support like rent assistance or utlity assist either.
    I worked blue collar all my life after earning my own way thru college and repaid 100% of my student loans on time too. I can no longer work due to on the job injuries, but have been denied any SSDI benefits (this is insurance I paid for all my life) because so many fraudulent claims have overwhelmed the system. Perhaps if SS fraud was punishable by deportation as well as bank fraud and participating in politically bribery we could get rid of the dead weight here. Fat is undesirable because it brings inefficiencies not priced into the cost structure so cut it out!
    The way that pork barrel projects have prevented the proper maintenance of our infrastructure by diverting the funds. If we deport them to Mexico we would be better off with an illegal alien for every one of these cheating politiacians and defrauding financial wizards. Sure some of the illegal aliens are using the medical system, but at least they only take what they actually need and then are willing to create something of value in exchange for an income.