The Battle Of Homeownership Vs. Renting

With today’s mortgage rates still very low, the cost of homeownership may rival that of renting in many markets.  Real estate blog Trulia states, despite asking price increases of 7% outpacing rental increases of 3.2%, the gap between buying and renting has narrowed only slightly.  Today, it is still 44% cheaper to buy a home versus renting in the 100 largest metro areas in the United States.

The top ten markets where buying is significantly less than renting are:

10. Indianapolis, IN – 58%

9. Birmingham, AL – 59%

8. Kansas City, MO – 60%

7. Memphis, TN – 62%

6. Toledo, OH – 62%

5. Warren, MI – 63%

4. Cleveland, OH – 63%

3. Gary, IN – 63%

2. Dayton, OH – 63%

1. Detroit, MI – 70%

Mortgage rates, tax deductions and the length of time you plan to stay in the home are the three factors that have the largest impact on the rent vs. own argument.

– With today’s average mortgage rate at 3.5%, buying is 44% cheaper.  But if mortgage rates were to rise, to say 4.5% it would only be 39% cheaper.

– Most taxpayers who are homeowners file an itemized tax return and mortgage interest and property tax payments are typically deductible.  If you itemize at the 25% tax bracket, buying is 44% cheaper.

– It’s a no-brainer that the longer you stay in the home, the more cost effective it is.  Spreading out the costs of buying and selling a home (closing costs, improvements, realtor commissions) over a number of years is will save you the most money.

Use this calculator to determine whether owning or renting is better for you.