Buying a home was once the “American Dream;” a promise for stability and a chance to own a stake in a community.
That was before the Great Recession, the housing market crash that accompanied it and the mortgage industry backlash that followed, making it much more difficult for people to buy.
Under current conditions, many people are opting to lease rather than buy. That, however, may not always prove to be the most financially sound decision.
With that thought in mind, the people behind the real estate website Trulia.com set out to conduct a study that compares the cost of buying versus renting in major markets across the country.
Researchers looked at five main factors to draw their conclusions on where it’s still cheaper to buy:
- A calculation of average rent and for-sale prices for an identical set of properties;
- A calculation of total initial monthly costs of owning and renting;
- A calculation of future total costs for owning and renting;
- The addition of one-time costs (closing, for example) and proceeds;
- A calculation of the net present value to account for the opportunity cost of money.
The idea was to combine these five factors in each metropolitan area studied to “yield a fair apples-to-apples comparison of the full costs of owning and renting similar units in similar neighbors,” the study’s methodology report notes.
Calculations also assumed buyers would make a 20% down payment and take out 30-year, fixed-rate mortgages at a 3.87% interest rate. The results of the recently released study were eye-opening.
It turned out that in all 100 of the country’s biggest metro areas it was cheaper to buy than rent. On average, the savings added up to about 35%.
Where It’s Significantly Cheaper to Own
While all metro areas showed savings for owners over renters, some regions produced astounding savings.
The top five places where it’s significantly cheaper to buy as of Spring 2015 are:
- Sarasota, Fla. – The cost of buying was 55% less than renting.
- Fort Myers, Fla. – The cost of buying was 54% less than renting.
- Baton Rouge, La. – The savings for buyers came in at 53%.
- New Orleans, La. – The cost of making a purchase added up to be 52% less than renting.
- Miami-Fort Lauderdale, Fla. – Savings here for buyers added up to 50%.
Where It’s More of a Closer Call
Not all areas presented buyers with excessive savings over renters. These are the top 5 metro areas where it was a closer call as of Spring 2015:
- Honolulu, Hawaii – It was only 16% cheaper to buy.
- San Jose, Calif. – Buyers here only save about 17% over renters.
- Lancaster, Pa. – The savings here for buyers added up to 19% over renters.
- Sacramento, Calif. – Savings here for buyers added up to 22%.
- San Francisco, Calif. – Buyers here only saved about 24% over renters.
There is one caveat to the figures, Trulia pointed out though. Homeowners association (HOA) fees were not factored in to the study, which means some purchases, even in the cheapest towns, could add up to more over the long haul.
Even so, Trulia’s Ralph McLaughlin says if a dream home has HOA fees attached “it isn’t necessarily a deal breaker.”
