Buy or rent? Study shows renting is more affordable in the 50 largest metros

For those weighing whether they should rent or buy a home right now, all signs point to renting as the more cost-effective option in most major U.S. cities, according to a new Bankrate analysis.

Nationwide, the typical home costs nearly 37 percent more to buy than to rent on a monthly basis. Rent increases have softened across the U.S. over the last year, and the combination of high home prices, elevated mortgage rates and low housing inventory creates a strong headwind for aspiring homeowners.

That doesn’t negate the fact that most Americans still do want to own a home. Nearly 4 in 5 Americans (78 percent) say owning a home is part of the American Dream, according to Bankrate’s Home Affordability Report. But the factors holding non-homeowners back from buying a home revolve around affordability, with the most common responses in the report being lack of income (56 percent), home prices being too high (47 percent) and not being able to afford a down payment and closing costs (42 percent).

To get a snapshot of the monthly cost differences between buying and renting, Bankrate analyzed typical monthly mortgage payments and typical monthly rents for all homes in the 50 largest U.S. metros as of February 2024.

Key insights from Bankrate’s Rent vs. Buy Study

It’s cheaper to rent than to buy in all major U.S. cities

Housing is generally expensive across the board right now whether you rent or own, but the current housing market is tipping in favor of renting. According to Bankrate’s analysis of Redfin and Zillow housing data, it’s cheaper to rent than to buy a typical home in all 50 of the largest U.S. metros. In 21 U.S. metros, the typical monthly cost of owning is at least 50 percent more expensive than the typical monthly cost of renting.

Nationally, the typical monthly cost of owning is nearly 37 percent higher than the typical monthly cost of renting. The typical monthly mortgage payment of a median-priced home ($412,778, per Redfin) in the U.S. is $2,703 as of February, while nationwide typical rent landed at $1,979 in February.

The fact that it’s cheaper to rent in all 50 metros is a reflection of broader housing market trends that are playing out.

Home prices are soaring, and while interest rates for mortgages are down from their 2023 peaks, they’re still relatively high. The national average for 30-year mortgages was 7.33 percent as of April 17, a 3 percentage point leap from March 2022, according to Bankrate’s survey of large lenders. The reason home prices remain elevated is in part due to a supply shortage of homes for sale. Olsen says the monthly mortgage cost on a typical home bought today is more than double that of one bought in 2019.

At the same time, renting isn’t necessarily affordable either. Zillow data shows asking rents, or what someone in the market for a rental would expect to pay today, for all rentals are up from year-ago levels in 47 of the 50 largest metro areas, though they aren’t climbing as quickly as they were during the COVID-19 pandemic. Asking rents have soared since the beginning of the pandemic, growing nearly 30 percent between early 2020 and February 2024, according to Zillow’s Observed Rent Index (ZORI).

Rents surged in 2021 and 2022 after pent-up demand for housing exploded with easing COVID-19 restrictions. Landlords hiked up prices as many young Americans moved out on their own for job opportunities and people flooded back into midsize and large metropolitan areas. What were some of the more affordable places in the country — specifically in the Southwest and Sun Belt, including Austin, Texas, and Cape Coral, Florida — quickly have become much less affordable in recent years, given demand.

“The long-term trend is that people seem to like the Sun Belt, probably because it’s sunny down there,” says Daryl Fairweather, chief economist of Redfin. “Those places have become more expensive since the pandemic because of how many people are moving in there.”

Housing costs are also heavily influenced by where you live in the U.S. In high-cost, coastal metros, such as San Francisco or Seattle, renting is generally much more affordable. In Seattle, for example, a typical home costs roughly 125 percent more to own than to rent on a monthly basis. Bankrate’s analysis also found renting is more affordable in the short run in metros with lower living costs, such as Detroit or Pittsburgh, but the differences between renting and buying costs are much smaller, making it financially easier to switch from renter to homeowner status. In Detroit, for example, a typical home costs only 2 percent more to own than to rent on a monthly basis.

Where it’s cheaper to buy

Bankrate’s analysis found it makes more sense to buy in U.S. metros that have smaller differences between typical mortgage costs and typical rent. These metros tend to have lower home prices and lower living costs overall. These are the top five metros with the smallest monthly cost differences between renting and buying:

• Detroit-Warren-Dearborn, MI Metro Area
  • Typical monthly rent: $1,395
  • Typical monthly mortgage payment: $1,423
  • Buy-to-rent ratio: 2%
• Pittsburgh, PA Metro Area
  • Typical monthly rent: $1,415
  • Typical monthly mortgage payment: $1,488
  • Buy-to-rent ratio: 5.2%
• Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Metro Area
  • Typical monthly rent: $1,829
  • Typical monthly mortgage payment: $1,988
  • Buy-to-rent ratio: 8.7%
• Cleveland-Elyria, OH Metro Area
  • Typical monthly rent: $1,377
  • Typical monthly mortgage payment: $1,537
  • Buy-to-rent ratio: 11.6%
• Buffalo-Cheektowaga, NY Metro Area
  • Typical monthly rent: $1,295
  • Typical monthly mortgage payment: $1,556
  • Buy-to-rent ratio: 20.2%

Where it’s more expensive to buy

The U.S. metros where it makes more sense to rent than to buy have the biggest differences between typical mortgage costs and typical rent. These metros also tend to be more expensive and have more competitive housing markets with higher home prices. These are the top five metros with the widest monthly cost differences between renting and buying:

• San Francisco-Oakland-Berkeley, CA Metro Area
  • Typical monthly rent: $3,024
  • Typical monthly mortgage payment: $8,486
  • Buy-to-rent ratio: 180.7%
• San Jose-Sunnyvale-Santa Clara, CA Metro Area
  • Typical monthly rent: $3,255
  • Typical monthly mortgage payment: $8,539
  • Buy-to-rent ratio:162.3%
• Seattle-Tacoma-Bellevue, WA Metro Area
  • Typical monthly rent: $2,191
  • Typical monthly mortgage payment: $4,930
  • Buy-to-rent ratio: 125%
• Salt Lake City, UT Metro Area
  • Typical monthly rent: $1,673
  • Typical monthly mortgage payment: $3,161
  • Buy-to-rent ratio: 89%
• Austin-Round Rock-Georgetown, TX Metro Area
  • Typical monthly rent: $1,753
  • Typical monthly mortgage payment: $3,269
  • Buy-to-rent ratio: 86.5%

Why compare mortgage rates? Shopping around for a mortgage rate with multiple lenders can mean locking in a lower rate and saving money on your monthly mortgage payment. According to 2023 research by mortgage giant Freddie Mac, borrowers who applied with two different lenders between 2010 and 2021 reduced their mortgage rate by an average of 0.1 percentage point, or 10 basis points. In 2022, the average reduction doubled to 20 basis points.

Balancing finances and lifestyle: the choice between buying and renting

The current housing market has made renting more attractive, but the rent-versus-buy decision involves long-term financial tradeoffs that you have to consider.

Renting allows for more flexibility and has lower upfront costs. Without a down payment or closing costs, you can keep more of your cash on hand and invest what you would’ve put toward a house into the stock market. Another perk is that your landlord is financially responsible for any maintenance or repairs.

However, there are long-term financial benefits to buying a home. Real estate is an asset that typically builds value over time and can later be sold for a profit, but it also typically improves your quality of life. Once you’ve purchased your first home, it’s generally easier to stay in the housing market since you can access the equity you’ve built in your first home to fund your next home purchase.

While renting is cheaper right now in the 50 largest metros, the financial incentive to buy is more obvious for Americans living in more affordable metros if they intend to stay in those areas for a few years and want to build wealth over time through owning property. If your housing costs are appropriately budgeted, fixed monthly mortgage payments can provide financial stability and be a shield against inflation as rent prices increase over time. Owners also have a lot more freedom to modify their homes and properties to their taste.

On the flip side, homebuyers have to lock in a substantial portion of money in a down payment instead of being able to invest that money in other assets. Homeownership can also come with unexpected headaches, and sometimes, expensive ones. If a dishwasher breaks or the roof needs replacing, it’s on the homeowner to cover those maintenance costs. Unless you’re willing to spend money to outsource certain tasks, there’s also general upkeep that comes with owning a home that requires time, such as maintaining your landscape or removing leaves and debris from your gutters.

Financial pros and cons of buying a home

Financial pros and cons of renting a home

• Additional lifestyle factors to consider

  Choosing whether to rent or buy is not only a financial decision, but also a lifestyle choice. Renting means you’re not tied down to any long-term responsibilities. You can more easily move around from city to city for job opportunities and won’t have to spend time or money on home repairs and maintenance. It also gives you an opportunity to live in places that are in close proximity to work, entertainment and cultural activities that you may not be able to afford to buy.

  Take the New York City metropolitan area, for example. Typical rent in the New York metropolitan area is $3,189, whereas the typical monthly mortgage payment for a median-priced home ($699,000, per Redfin) in the same area is $4,775 — nearly a 50 percent difference. If you crave flexibility, freedom from maintenance responsibilities and access to desirable dining options and social activities in expensive cities, renting is likely a better option for you.

  “If you plan on living somewhere for less than five years, there’s a good chance you will want to rent there,” Olsen says.

  Owning a home comes with a sense of security and stability that appeals to many people. By owning, you’re committing to staying in the same area for several years, making it easier to build a lasting community and create stability to plan for the future. You also have the freedom to alter your home to fit your personality and living needs, which can strengthen your bond with the space.

  An extra perk is that any functional or cosmetic improvements to your home are often investments that will contribute to your home’s value. If you’re in a financially sound position with a healthy amount of savings, plan to stay put in your area for more than five years and want the freedom to tailor your home, buying a home is likely a better option for you.

Research of your local market is critical for prospective homeowners

Housing experts say those looking to buy a home will likely find the housing market challenging right now.

“I don’t think anyone would say that buying in this market is easy,” Olsen says. “Those who already owned a home or were able to sneak in and buy one before rates doubled in 2022 are probably feeling grateful.”

Before you start looking at homes for sale, Olsen recommends talking to a loan officer to get a better understanding of what you can afford to pay, both upfront for a down payment and on a monthly basis. A loan officer or mortgage broker can also help you identify strategies to reach your housing goals.

For instance, down payment assistance programs can provide a massive leg up over that specific hurdle. You’ll want to know which programs you might be eligible for in the areas you’re browsing in. Keep in mind that while a 20 percent down payment is great for reducing monthly costs, it’s not always necessary. Smaller down payments are much more attainable, Olsen says.

Olsen also recommends first-time buyers leverage a knowledgeable local agent, one who takes the time to understand their budget and their long-term housing goals.

“A good agent will help focus your search and get you the best deal possible in today’s competitive market,” she says.

Is it better to rent or buy right now? Advice from 3 housing experts

The rent-versus-buy question is one that millions of Americans are grappling with at a time when rent prices are still high and buying a home has gotten even more expensive. We asked three housing experts to share their tips on how to best navigate the current housing market. Here’s what they said.

Don’t rush into buying a home

Figure out where you see yourself living and for how long

“Anyone who is thinking about staying put beyond 10 years is at a point where they’re financially and emotionally ready to potentially become a homeowner. In today’s market context, you’re probably going to want to plan to stay in your home on the longer end of the five-to-seven-year range in order for buying to make sense.”

Danielle Hale, Realtor.com chief economist

Consider how you’re building long-term wealth

“A monthly mortgage payment on a typical U.S. home is larger than a rent payment on a similar property if you put less than 20 percent down. But — if you aren’t saving a lot of money renting, and you’re not growing those savings by investing them — buying a house will pencil out a lot sooner. A purchased home is an appreciating asset, and it becomes more and more ‘yours’ with every monthly mortgage payment you make. It’s an automatic savings mechanism for those who don’t invest religiously.”

Skylar Olsen, Zillow chief economist

Full data: Renting vs. buying in the 50 largest metros

• Methodology

  Bankrate’s Rent vs. Buy Study analyzed typical monthly mortgage payments and typical monthly rents for all homes in the 50 most populated U.S. metros to compare the monthly cost of buying vs. renting.

  Typical monthly rents are measured by Zillow’s Observed Rent Index (ZORI) as of Feb. 29, 2024, which is the average of the middle 30 percent of asking rent prices (35th to 65th percentile) — or what someone in the market for a rental would expect to pay today. ZORI accounts for changes in the types of homes available to rent in any given month by calculating price differences for the same rental unit over time, and then aggregating those differences. For monthly rents, Bankrate factored in the typical monthly cost of renters insurance for every metro. Bankrate used 1 percent of monthly rent as an approximation for the monthly cost of renters insurance.

  Bankrate utilized Redfin’s median sale price data from February 2024 to calculate typical monthly mortgage payments for the 50 largest metros. When estimating typical monthly mortgage payments for every metro, Bankrate assumed a 20 percent down payment, no HOA fees or private mortgage insurance (PMI), the average homeowners insurance rate for that metro, the average property taxes for that metro and the national average rate for a 30-year mortgage (7.01%) as of March 27, per Bankrate’s survey of large lenders. Bankrate utilized 2022 average property tax data from ATTOM and average homeowners insurance rates as of April 2024 from Bankrate’s Quadrant Information Services data.

  With the exception of property taxes, homeowners insurance and renters insurance, the study doesn’t factor in upfront and ongoing costs associated with renting or buying (closing costs, maintenance costs, rental application fees or security deposit). Home equity built over time, the ability to refinance a mortgage for a lower rate or homeowner tax benefits were also not factored in the study. The quality of rental homes may not match the quality of homes for sale, and seasonality in the housing market may impact the analysis. Results in this study in no way indicate approval or financing of a mortgage.