The outlook for first-time home buyers in the US may seem bleak with high borrowing costs, home prices, and inflation. This may lead many prospective buyers to continue renting, as it’s generally seen as more affordable. But is renting truly the most cost-effective option? We crunched the numbers and found that in several cities across the US, it is still possible to achieve your homeownership dreams without depleting your savings. In some cities, it’s even possible to transition from renting to owning while saving money in the process.
Zoocasa analyzed data for 111 markets across the US and compared monthly rental prices and monthly mortgage payments for the median single-family home in each. Additional costs for each were not considered, such as utilities or property taxes. Rental price numbers were sourced from Zumper’s June national rent report, while the monthly mortgage payments were calculated using Nerd Wallet’s Mortgage Payment Calculator assuming an 8% down payment, a 30-year amortization, and a fixed rate of 6.78%. According to the National Association of Realtor’s 2023 Profile of Home Buyers and Sellers, the typical down payment for first-time buyers was 8%. Median single-family home prices were sourced from the National Association of Realtors.
The 12 Cities Where Owning Is More Affordable than Renting
In the majority of cities analyzed, renters transitioning to homeownership will face higher monthly mortgage payments compared to the average rent for a 2-bedroom apartment. However, there are 12 cities where homeownership is more affordable than renting.
New York, NY has the largest gap between monthly rent and mortgage payments at $781, but it also has some of the highest average rents and mortgage payments in the country, making it a challenging city for both renters and buyers.
Pittsburgh, PA, and Syracuse, NY are two more affordable cities for first-time home buyers thanks to their low median home prices. In Pittsburgh, the monthly cost of renting a 2-bedroom apartment is $1,550 while the average monthly mortgage payment is $1,240, a $310 difference. Similarly, in Syracuse, the monthly cost of renting a 2-bedroom apartment is $1,500, while the average monthly mortgage payment is $310 lower at $1,190.
The least expensive mortgage payments can be found in Peoria, IL, and South Bend, IN, with monthly mortgage payments of $761 and $1,077, respectively. The difference between monthly rent and mortgage payments is greater in Peoria, where the monthly mortgage payment is $289 lower. In South Bend, the difference is much smaller, at just $55.
The six other cities where owning is more affordable than renting are Chicago, Rochester, Miami, Cleveland, Charleston, Buffalo, and New Orleans. Among these, Cleveland has the lowest median single-family home price at $191,900, bringing the average monthly mortgage payment to $1,149. In comparison, renting a 2-bedroom apartment in Cleveland would cost $1,250, which is about $100 more than the monthly mortgage payment.
Less Than $500 Difference in Monthly Mortgage vs. Rent in 48 Cities
Although buying is more expensive than renting in most U.S. cities, the difference is relatively minor in 48 cities, where the gap between rent and mortgage is less than $500. This includes cities such as San Antonio, Nashville, and Arlington. First-time home buyers in cities like Atlanta, Louisville, and Dallas will have an even easier time transitioning from renting to buying, with the difference between monthly rent and mortgage payments being under $300. By budgeting accordingly, first-time buyers can find that investing an extra few hundred dollars a month in homeownership can be a worthwhile and feasible decision.
However, a more affordable home doesn't necessarily mean an easier transition from renting to owning. Many cities with low single-family home prices still have significant gaps between the average monthly mortgage payment and the average monthly rent. For example, in Green Bay, WI, the median single-family home price is $288,000, resulting in an average monthly mortgage payment of $2,447. Meanwhile, the average monthly rent for a 2-bedroom apartment in Green Bay is just $1,094, which is $1,353 lower than the mortgage payment.
Similarly, Abilene, TX, Columbia, SC, and Bloomington, IL have median single-family home prices under $300,000 but a gap of more than $800 between the monthly mortgage and monthly rental payments. Prospective first-time buyers in these cities may find it easier to start by investing in a condo or townhouse, allowing them to build equity before moving into a larger home.
25 Cities Where Renting Saves Over $1,000 Compared to Owning
In many cases, first-time home buyers will face greater challenges in cities where the monthly mortgage payments exceed rent by more than $1,000. In Colorado Springs, San Diego, San Francisco, Anaheim, and San Jose, the challenge is even greater as the gap between monthly rent and the monthly mortgage payment is over $2,000.
Cities like Pensacola and Las Vegas, which are popular among tourists and retirees, have significant gaps between rental and homeownership costs. The influx of retirees and tourists likely drives up property values disproportionately compared to rental rates. Prospective first-time home buyers in these cities may want to consider more affordable locations within their state, such as Jacksonville, or Henderson, where the difference between monthly mortgage and rental costs is under $1,000. This move could make the transition from renting to owning more manageable.
Lower Your Monthly Costs with a Larger Down Payment
First-time home buyers who are determined to live in less affordable cities may want to consider making a larger down payment. This strategy can save hundreds of dollars each month and make homeownership more financially manageable in the long run.
For example, if a first-time home buyer put down 15% in Phoenix, instead of 8%, the monthly mortgage payment would lower from $1,166 to $952. In Atlanta and St. Louis, the impact of a larger down payment is even more significant. With an 8% down payment, monthly mortgage payments in both cities are higher than rent. However, with a 15% down payment, the monthly mortgage payments in Atlanta and St. Louis drop below the average monthly rent, making homeownership more affordable.
By strategically selecting an affordable location or diligently saving for a larger down payment, first-time home buyers can significantly improve their chances of achieving their homeownership goals.
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