Many renters dream of owning their own home one day. After all, paying off your own mortgage is more valuable than lining your landlord’s pockets, right? Aside from the evident long-term return potential, buying a home with a mortgage currently costs less than renting. Homeownership now delivers two-fold benefits – a long-term investment strategy and near immediate monthly cost savings.
Where Buying Beats Renting: The East Coast Comparison
| U.S. Metro | Median Home Value, Fall 2016 | Median Rent, Fall 2016 | Cost of Buying vs. Renting (%), Fall 2016 | |
| 1 | Miami, FL | $259,527 | $2,000 | -53.2% |
| 2 | West Palm Beach, FL | $241,509 | $1,950 | -53.2% |
| 3 | Houston, TX | $176,513 | $1,575 | -52.9% |
| 4 | Fort Lauderdale, FL | $217,342 | $1,800 | -52.9% |
| 5 | Charleston, SC | $218,090 | $1,575 | -52.5% |
| 6 | Baton Rouge, LA | $158,405 | $1,350 | -51.7% |
| 7 | New Orleans, LA | $171,302 | $1,450 | -51.2% |
| 8 | Syracuse, NY | $122,040 | $1,400 | -51.0% |
| 9 | Philadelphia, PA | $141,176 | $1,300 | -50.8% |
| 10 | Columbia, SC | $124,733 | $1,125 | -50.6% |
| Note: Negative numbers mean that buying costs less than renting. Data for all metros and all scenarios presented in this report can be downloaded here. | ||||
Per real estate website Trulia’s recent Rent vs. Buy report, buying is 37.7 percent cheaper than renting on a national level, assuming households put at least 20 percent of the purchase price toward the down payment and live in their homes for at least seven years. Some major cities across the nation, including Philadelphia, make an even greater case for homeownership. Philadelphia is no. 9 of the top 10 cities where buying beats renting the most. With a median home value of $141,176 and a median rent of $1,300 per month, buying is 50.8 percent less expensive than leasing. Aside from Syracuse, where buying is 51 percent cheaper than renting, most cities in the Northeast don’t offer such a large competitive advantage.
Take New York, for example, where the median home price is a steep $408,774. Renting in NYC costs a median $2,350 per month. The side-by-side cost comparison shows buying a home for sale in New York is 32.9 percent less expensive than renting one. While still advantageous, the financial savings in New York City don’t stack up to those in the City of Brotherly Love. And, buying the median home in New York would set you back over $81,000 for a 20 percent down payment. In Philly, the median 20 percent down payment costs around $28,000.
Similarly, buying a home in Boston costs a median $411,228. Meanwhile, the median rent is a pricey $2,400 per month, which makes buying 37.6 percent cheaper than renting. Clearly, Boston homeowners save money. However, that’s assuming prospective buyers can first invest 20 percent of the median home price, or upwards of $80,000 not including closing costs.
In Baltimore, buying is 39.7 percent cheaper than renting. The median home in Charm City costs $253,223 while the median rent is $1,750 per month. Keep in mind that buying homes for sale in Baltimore at the median price point would cost over $50,000 up front. Like other cities in the Northeast, the cost disparity between renting and owning is not as high as Philly, and the expenses required at closing are significantly higher.
The Benefits of Buying Sooner, Explained
Interest rates are still favorable, which many real estate consumers in Philadelphia and beyond assume is the strongest affordability advantage to buying now. As it turns out, the biggest concern prospective buyers should weigh is rising home prices.
For the scale to tip in favor of renting, interest rates would have to more than double. Home prices, on the other hand, would only require a small increase to eliminate the cost savings behind homeownership. In Philadelphia, the median home price would have to increase 122 percent to $313,411 for renting to outweigh buying. Meanwhile, interest rates must jump 285.2 percent to an average 14.1 percent rate. Both are unlikely in the near term, but benefitting from lower home prices is the more pressing of the two scenarios.
Considering the pace by which home prices have escalated in recent years, home price increases are more realistic compared to a massively unprecedented Federal Reserve interest rate hike. Of course, benefitting from both lower home prices and favorable interest rates simultaneously is a win-win situation. Assuming you’re ready to make the leap, taking advantage of the Philadelphia real estate market conditions can eliminate higher monthly rental burdens while creating extended investing benefits for the future.
By Jennifer Riner, Trulia
