Sizeable increases in home prices and low inventory won’t be enough to drive buyers away just yet. Buyers are likely to continue to hunt for homes due to low-interest rates that have driven affordability to the point where buying is cheaper than renting in more cities across the nation, according to a realtor.com study.
The company compared the monthly cost of buying a median-priced home to the median price of renting a two to four-bedroom unit in each of the top 50 markets in January 2021. What the analysis revealed was buying cost the same or was cheaper in 15 of the nation’s 50 largest metros, up from 13 in 2020. Additionally, nine other markets were within 5% of flipping in favor of buying. Those regions include Atlanta, Orlando, Birmingham, Phoenix, Buffalo, Memphis, Washington, Las Vegas and Milwaukee, according to a press release.
“There isn’t a one-size-fits-all answer to the question of whether it makes more sense to buy than rent. However, this is encouraging news for the millions of millennials who are approaching peak homebuying age and may be considering shopping for a home this spring,” said realtor.com chief economist Danielle Hale. “With interest rates expected to rise over the coming months, buyers may need to act sooner rather than later to take advantage of today’s affordability or be prepared to adjust their target purchase price.”
As rates hit historical lows, the monthly cost to purchase a median-priced home in the U.S. increased 0.2% year-over-year to $1,988. The cost of rent was up 2.4% to $1,727. The analysis also showed that buying the median-priced home accounted for 32% of a metro’s median income, just slightly above the upper limit of the budgeting rule of thumb of spending 30% of gross income on housing costs. The cost to rent accounted for 27%.
Meanwhile, remote working conditions have driven rent down considerably in the nation’s largest tech hubs. The gap between renting and buying is now widened in areas like San Jose, Sacramento, Seattle and Los Angeles.