After the real estate market deteriorated in the wake of the sub-prime mortgage crisis, the prospect of renting a home vs. buying became much more attractive. In fact, this trend has been well supported by a substantial decrease in home ownership to levels not reached in decades.
To be fair, purchasing a home can still be an excellent long-term financial goal as it provides shelter for your family with the potential to build up a solid investment. That said, there remain in the United States many housing markets where renting is a cheaper proposition than buying in spite of declining home values.
With the help of real estate website Trulia.com, we’ll virtually visit the top 10 cities where it generally makes more sense to rent than to buy. To develop this list, each city’s median sales price was compared to rental prices for similar homes and when necessary, other home ownership factors, such as insurance and taxes, were accounted for.
6 Cities Where It’s Clearly Better to Rent
1. New York City
Moving to Manhattan? You’ll want to rent. Skyline views, proximity to world-famous museums, cultural centers, and some of the highest paying jobs in America (and for that matter, the world) don’t come cheap, and housing costs in The Big Apple reflect this.
The average cost of a home in Manhattan costs between $1.3M and $1.4M. But you can rent a similar apartment or home for a huge discount as rental prices currently average between$3,500 and $4,000 monthly. In New York City, it’s a no-brainer; renting a home will save you a bundle over buying.
The Emerald City is as beautiful as it is pricey. This may be due to the huge economic growth experienced there with the advent of such titans as Microsoft, Starbucks, and Amazon as well as the continued success of long-term corporate residents like Boeing.
But this city on the Puget Sound offers much more than a high-tech, highly educated job market and corresponding populace, it also rubs elbows with the great outdoors, that can only be found in the Northwestern United States. If you’re looking for a home in the Seattle metropolitan area, you will likely pay between $400,000 and $500,000 to buy. Luckily, however, rental costs are much more reasonable and average only $1,000 to $1,500 a month.
3. San Francisco
If you have ever been to or even heard rumors about the cost of living in the Bay Area, you know it’s not a cheap place to live under any circumstances. Average home prices in San Francisco are currently between $700,000 and $800,000, and for good reason. The City by the Bay offers a world-famous restaurant scene along with hundreds of cultural attractions, a booming tourism market, and a chance to live in one of the most beautiful areas in the country.
If the price to buy sounds steep, however, relax. Rental prices are much more affordable and are currently between $3,000 and $3,500 a month.
4. Kansas City
Housing in middle America is far more affordable than housing on either coast, regardless of whether you choose to rent or purchase. Plus, Midwest cities offer many of the opportunities and amenities that coastal cities do.
But just because costs are lower in the Midwest, doesn’t mean that buying is a better deal. In fact, in Kansas City it’s cheaper to rent, even though the price to buy only ranges between $200,000 and $300,000. Still, rental costs work out to be much lower and average between $500 and $1,000 a month.
Like Kansas City, home prices in Memphis are much more affordable than major metropolitan centers near the Atlantic and Pacific. Buying an average home in the Memphis area will cost between $100,000 and $200,000, allowing you to live like a king at a major discount to coastal metropolitan areas.
However, with rents typically between $500 and $1000 a month, renting in Memphis is still often cheaper than buying.
6. Los Angeles
The City of Angels may also be a city of renters. Since home prices average between $400,000 and $500,000, residents without successful acting careers may balk at the cost of home ownership. But the California dream may be a little closer to reality for renters, who on average pay between $2,000 and $2,500 a month.
That said, L.A. is one of those cities where, given the tax deduction and if you get a sweet deal on a new home, you could near the break-even point between renting and buying.
4 Cities Where It May Be Cheaper to Rent
The last four cities in our list fall into somewhat of a gray area. In some cases, the benefits to renting only slightly outweigh the benefits to buying, whereas in other cases, buying may actually win out.
What tips the scales will depend on other financial factors, such as how much of a tax deduction buying will afford you, how expensive real estate taxes and insurance will be, and how you think the local housing market will perform in the future.
But there are also other non-financial factors to consider when deciding the best place to live. These may include your career goals, the quality of local schools, crime rates, and the proximity to family. At the end of the day, only you know what is best for you and your family and you’ll want to take a long hard look at this when considering whether to rent or buy in the following cities.
7. Fort Worth
Though this once-suburb of Dallas has grown into a metropolis of its own, the Fort Worth housing market remains fairly affordable for both renters and buyers. Home prices in the area are generally between $100,000 and $200,000, while rental prices average between $500 and $1,000 a month.
Fort Worth is an up-and-coming area in a state that has experienced unprecedented growth in recent history. Because of this and even though the financial analysis leans slightly in favor of renting, analyze your personal and tax situation thoroughly to determine whether buying or renting is the more attractive option.
If you are looking to set down roots in the Oakland area, you may want to buy. On the other hand, if you are just staying for a short period of time, renting is probably the better option. Oakland, a suburb of the ultra-expensive San Francisco, offers a purchase vs. rental cost that can leave new residents scratching their head when trying to make a decision.
The average home cost in the Oakland metro area is between $200,000 and $300,000, while a comparable rental will ring in around $1,000 to $1,500 a month. Once again, the decision to rent or buy may come down to what makes the best sense for your situation.
This hard-to-spell city is also a city where it just might be better to rent, depending on your family’s personal circumstances. While an average house in Albuquerque will cost between $100,000 and $200,000, rent for the same home will generally cost only $500 to $1,000 a month.
Prospective buyers of property in the Sun Belt, however, will do well to think twice as real estate markets in many Southwestern states have been crushed in the wake of the real estate downturn.
The City of Roses rounds out the top 10 cities where it may be better to rent than to own. Portland is nestled in the Willamette Valley at the confluence of the Willamette and Columbia Rivers and offers big-city culture with small town charm. This metropolitan area has experienced enormous growth in recent years and the real estate market has begun to reflect the increased demand.
Average housing costs in the Portland area are between $200,000 and $300,000, while rental costs are generally between $1,000 and $1,500 a month for a comparable home. Again, this makes Portland a city where the benefits of renting vs. buying will depend primarily on your personal priorities and life circumstances.
Other Factors to Consider
Though looking to the average or median home sales price can give you a general idea of how much it will cost to own, you’ll need to consider other financial factors to get a more accurate figure to better compare area rentals to.
For example, what kind of mortgage rate will you qualify for? (i.e. how’s your credit?) How much of a down payment can you contribute? Will you need to purchase mortgage insurance? Also, how much are real estate taxes and insurance in your area? The answers to these questions will indicate how much you can expect to pay for home ownership on a monthly basis. This will be most useful in “gray-area” cities where the financial benefits to buying and owning can be close.
Don’t forget the all-important home mortgage interest tax deduction either. This can reduce your annual tax bill by thousands, especially if you’re in a high income tax tax bracket, and thereby lower your overall cost to own, perhaps significantly. Owning a home will also put you in a position to build up equity that can be recaptured when you sell as long as the housing market doesn’t decline further.
Renting, on the other hand, is not an investment – you’re neither in a position to lose or gain any additional money. For these reasons, assess where you think the housing market is headed in general and specific to the area you’re looking at before you decide whether to rent or buy.
The decision to buy or rent is never a simple one. There are many positive and negative factors that support either choice, and ultimately, you need to choose what option best suits your needs and life situation. If you are leaning towards renting and your city is on this list, your decision will be made much easier!
Do you live in any of these cities? What is your experience with renting or buying?