While there are plenty of arguments for and against buying a home, it remains a goal for most people. But is it better to rent or own a home? And is owning a home more expensive than renting?
While home ownership is generally the better financial decision in the long term, high prices and rising interest rates put that goal out of reach for many people. However, there are some parts of the country where it’s cheaper to buy a house than to rent.
Key takeaways
- In 45 of the 50 largest metro areas in the U.S. renting is cheaper than buying.
- In a few cities, it’s actually cheaper to own, including Memphis, Tenn., and Pittsburgh, Pa.
- Renters have lower costs overall, including cheaper insurance and no maintenance costs, but owning a home builds equity for the future.
Is it better to buy or rent?
Whether it’s better to buy or rent depends on a lot of personal factors, but for many people, it comes down to what they can afford, and it’s not just finding a down payment or managing the monthly payments. Homeowners insurance and property taxes are part of the equation. And homeowners are responsible for all home maintenance and repairs.
On the other hand, real estate is a good investment; when you pay a mortgage, you earn equity in your home, while renting means you’re earning equity for someone else.
Still, when it comes down to the monthly payment, whether it’s better to own or rent largely depends on where you live.
Where is it cheaper to buy a home?
A 2023 study by Realtor.com found that there are some cities where you’ll pay a lot less for the same square footage if you buy instead of rent. Here’s a look at the top five cities where it’s cheaper to own a home, according to the study:
1) Memphis, Tenn.
Median monthly cost to own: $847
Median monthly rent: $1,258
2) Pittsburgh, Pa.
Median monthly cost to own: $1,097
Median monthly rent: $1,445
3) Birmingham, Ala.
Median monthly cost to own: $879
Median monthly rent: $1,149
4) St. Louis, Mo.
Median monthly cost to own: $1,128
Median monthly rent: $1,211
5) Baltimore, Md.
Median monthly cost to own: $1,684
Median monthly rent: $1,749
Where is it cheaper to rent?
The study found that it’s cheaper to rent in most cities; in fact, in 45 out of 50 cities, renting is cheaper. However, in these cities, known for pricey real estate, renting is considerably cheaper.
1) Austin, Texas
Median monthly cost to own: $3,672
Median monthly rent: $1,659
2) San Francisco, Calif.
Median monthly cost to own: $5,798
Median monthly rent: $2,943
3) Seattle, Wash.
Median monthly cost to own: $3,831
Median monthly rent: $2,059
4) Boston, Mass.
Median monthly cost to own: $4,965
Median monthly rent: $2,868
5) Portland, Ore.
Median monthly cost to own: $2,996
Median monthly rent: $1,750
What should you consider when deciding whether to buy or rent?
The biggest consideration for most people is whether or not they can come up with a down payment to buy a house, but interest rates and the other costs of owning a home all are factors.
However, if you do have a down payment, buying a house is generally a good investment. Even with fluctuations in the market, real estate tends to go up in value over time. Of course, there have been major economic downturns, but buying a house remains a relatively safe bet.
As a home increases in value over time and you pay down the mortgage, you build equity in the house that you can tap into if you need it or simply think of it as a nest egg. A home is a long-term investment, and if it’s done wisely, you will come out ahead over the years.
However, you need to think of all of the other costs of owning, including homeowners insurance, which averages $2,777 a year. Then there are maintenance, repairs, and property taxes to consider as well.
Is renting really a waste of money?
Although it's true that you are paying someone else’s mortgage when you rent and you aren’t earning any return on that money, renting certainly isn’t a waste of money and makes sense for some people. Like any other bill, monthly rent is something you pay to get something in return. In this case, it’s a roof over your head.
And the good news is that you’re not responsible for that roof. Or any other maintenance or repairs, which any homeowner will tell you can be very expensive. Many renters can also let someone else handle chores like yard work. And the average cost of a renters insurance policy is only $327 a year, since you’re not responsible for the structure.
Source:
- Realtor.com.“ The Cities Where You’ll Save Money Renting in 2023 - and the Ones Where Buying a Home is Cheaper.” Accessed March 2023
