It’s 41% Cheaper to Buy Than to Rent


rent-or-buy-a-homeThat’s the national statistic according to Trulia Trends.

Although the calculation varies depending on the city, this calculation assumes you get a 3.9 percent, 30-year fixed mortgage and make a 20 percent down payment, stay in your home for 7 years and deduct mortgage interest and property tax payments at the 25 percent tax bracket. Factors other than mortgage rates play an important role in the buy-versus-rent decision, such as the level of local home prices relative to rents. Jed Kolko, the chief economist at Trulia, explains that prices of homes are higher relative to rents in San Jose than anywhere else, which is why it takes a relatively low mortgage rate of 5.2 percent for renting to become cheaper than buying. In Detroit, by contrast, where home prices are extremely low relative to rent, it takes a mortgage rate of 35.8 percent to make renting more economical.

In Honolulu, HI, buying is 23% cheaper than renting, which is one of the lower-benefit rankings. Elsewhere the benefit can be much higher. However, buying a home in this markets might make sense for people who plan to stay in their next home for at least five years and can benefit from the mortgage-interest tax deduction.

While mortgage rates and housing prices are likely to keep rising, rates remain near long-term lows and housing prices are still recovering from their bust. So buying a house is still a better deal than renting.

If you want the specifics for your rent-versus-buy decision, Bankrate provides a handy online calculator.