Why Buying a Home Still Beats Renting...for Now
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The Fiscal Times
February 26, 2014

Buying a home is still cheaper than renting one in every one of the top 100 metro markets, but rising home prices and mortgage rates are making the equation more complicated.

Nationally, it’s 38 percent cheaper to buy than to rent a home right now, according to a new report from Trulia, the real estate online marketplace. The report assumes that owners receive a 4.5 percent mortgage, stay in their home for at least seven years, and are in the 25-percent income tax bracket. Last year, it was 44 percent cheaper.

The math, however, is different in every market, depending on local home prices and rents: In Honolulu, it’s just 5 percent cheaper to buy, while in Detroit homebuyers save 66 percent.

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Nationally, mortgage rates would have to reach 10.6 percent (an unlikely scenario in the near future) in order to make renting the more cost-efficient option, but the “tipping point” is much lower in some markets. In Honolulu, San Jose, and San Francisco, the tipping point for mortgages is less than 6 percent, according to Trulia.

The Trulia calculation uses a modest annual home price appreciation assumption of between 1.7 percent and 3.1 percent according to the metro; however, home prices in most areas have increased at a much higher rate lately.

Home prices increased 11.3 percent in 2013, which was the highest rate since 2005, according to the S&P/Case-Shiller Home Price Indices released this morning. Economists agree, though,  that the pace of appreciation will likely moderate in coming years.

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Life + Money Editor Beth Braverman covers all things personal finance. Formerly a senior reporter and social media editor at MONEY magazine, she’s also held gigs as a newspaper reporter and trade magazine editor.