While homeownership may not be the American Dream for everyone, in some locales across the country it’s an economic dream fulfilled. Those are markets where buying is cheaper than renting. Once again I invoke the invoke the TINSTAANREM axiom — There Is No Such Thing As A National Real Estate Market. Nor is there such a thing as a typical housing or rental market.
In some markets, housing is so expensive that it makes no economic sense for many to purchase a home. In some of those same markets, incomes fall short of covering the mortgage payment or rent. In other markets, the interaction of supply and demand skews people to buying while renting is a preferred economic solution in others. Every market is different.
To identify those markets that are cheaper to purchase rather than rent, smartasset® examined the 100 largest metros in the U.S.
Restrictions and assumptions included:
- Typical household earns less than $100,000 annually
- 30-Year residential interest rates 4.5 percent (at the time of this writing it is 4.03 percent)
- Buyer-paid closing costs $2,000
- 20 percent down payment
Included metrics in addition to the previous assumptions included average rent and home prices in each market. So what markets do buyers achieve the quickest payback when buying versus renting?
To view this analysis for all 50 states click here. The data are reported on county-level basis and the tool includes the ability to specify breakeven hurdle time.
To read the article by CNBC click here.
Key at this time on affordability are the still-less-than typical interest rates. The average 30-year fixed-rate conventional loan interest rate since October 1997 was 5.56 percent based on Freddie Mac’s Weekly Primary Mortgage Market Survey. Since April 1971, the average rate was 8.22 percent, peaking at 18.63 percent in October 1982 and hitting a low of 3.31 percent in November 2012.
Even with these quick payback periods, not all households can participate given the assumed 20 percent down payment.
For many households, however, buying today at still low interest rates makes buying today a great economic decision.