Mortgage interest rates may not be sitting at record lows anymore, but it's still cheaper to buy than rent in most parts of the country, according to new research from Trulia. The real estate website compared the costs of homeownership and renting in 100 of the largest metro areas and found that even with rising mortgage rates, buying a home is 35 percent cheaper than renting. With that said, the gap is closing: a year ago, it was 45 percent cheaper to buy a home than to rent.
When comparing the costs of owning to renting, Trulia assumed buyers will get a 4.8 percent mortgage rate on a 30-year fixed mortgage with a 20 percent down payment. The estimate also assumed the buyers were in the 25 percent tax bracket and plan to stay in the house for seven years. Home prices and mortgage rates are rising, but they are coming off from such lows that it remains cheaper to buy than rent across the country.
Renting vs. Buying:Still, in some cities like San Jose, San Francisco and Honolulu, rising interest rates and increasing home prices are closing the gap on renting versus buying. According to Truilia, buying in Detroit is 65 percent cheaper than renting, but in San Jose, buying is only 4 percent cheaper. The website notes that purchasing a home in San Jose, San Francisco and Honolulu is 10 percent or less cheaper than renting compared to a year ago when it was 24 percent cheaper to buy in Honolulu, 28 percent in San Francisco and 31 percent in San Jose.
"The biggest factor narrowing the gap between the cost of buying and the cost of renting are rising mortgage rates, which affect the entire country," the company said in a report. "In fact, the benefit of buying relative to renting shrank in nearly all of the 100 largest metros over the past year: only in Springfield, Mass., did the gap widen, from buying being 47 percent cheaper than renting last year to being 49 percent cheaper than renting today."
Rounding out the top five cities where it's much cheaper to buy then rent are Detroit, where its 65 percent cheaper, Gary, Ind., Memphis, Cleveland and Kansas City, Mo., where its 53 percent cheaper to rent than buy.
Data from real estate brokerage firm ERA Real Estate reiterates that rising interest rates haven't completely stalled home purchases. The firm polled its agents to gauge the impact of increased rates, and agents in Silicon Valley; Columbus, Ohio; Cincinnati, and Leesburg, Fla., report strong homebuying demand.
However, it's important to note those areas experienced significant drops in home prices during the financial crisis, and much of the recovery is being led by investors. For instance, in Silicon Valley, Bill Aboumrad with Legacy Real Estate & Associates ERA says 30 percent of his company's deals are all cash and commercial land purchases are rampant.
Meanwhile in Fayetteville, N.C., and Colorado Springs, the rising mortgage rates are having an impact. Larry Strother, president of ERA, reports that rising rates have kept many potential buyers on the sidelines and is particularly hurting first-time buyers. In Colorado Springs, Bill Hurt, president of ERA Shields Real Estate, says mortgage rates are playing a role in the slowdown in homebuying, but it's not the only culprit.
"Refinance activity is way down, showings are down 50 percent year-over-year and inventory is up slightly, but this is a product of both mortgage rate increases as well as seasonality," he says.
It's Still Cheaper to Buy a Home Than Rent -- If You Have the Cash
The small town of Rock Island, Ill., is part of the Quad Cities about 175 miles west of Chicago, has a population of about 39,000. There’s a wide variety of housing available in Rock Island including historic homes, downtown condos, new construction in the heart of the city, and wooded retreats. And the prices vary, from a $1.45 million "House on the Hill" overlooking the Rock River Valley, to this three-bedroom, three-bath one pictured for under $100,000.
List Price: $99,900 - The brick "Magill House" at 2,253-square-feet is a registered historic home. Built in 1868 in the Italianate style, it was revived in 1992 with updates and additional improvements. There is a beautiful, winding wood staircase, hardwood floors on the main level, a master bath, a breakfast nook, built-ins, and heated three-car garage.
Spokane, home of the 1974 World's Fair, sits in the county seat of the same name. With just more than 200,000 residents, it is second largest city in the state of Washington but still small enough to rank low among major cities, giving residents the best of both worlds.
List Price: $99,500 - This updated Craftsman on the north side of town is nestled on the corner of a tree-lined street in a quiet neighborhood, according to its listing. At 3,054 square feet, this four-bedroom home is bigger than it might first appear and even has two rental units on site.
Located on the Mississppi River, Dubuque is home to baseball's "Ghost Players" -- the guys who played the old ballplayers in the Kevin Costner film "Field of Dreams." But it also likes to be known as the first town that was established in the state of Iowa, according to its Chamber of Commerce.
List Price: $118,840 - This three-story brick, historic federal-style farmhouse with a Dutch roof has been restored. It has six bedrooms, three baths, hardwood floors, and a front and a rear stairway. There are two cement patios, and one of them is fenced.
Omaha is the largest city in Nebraska, but is No. 42 on the list of largest U.S. cities, behind Mesa, Ariz., and Virginia Beach, Va. The city is also home to one of the wealthiest men in the world, Warren Buffet, who lives in one of the most modest homes for his status, as HuffPost Home has reported. The Wizard of Omaha has said "a house can be a nightmare if the buyer's eyes are bigger than his wallet."
List Price: $100,000 - One of the smallest on our list, this 1,025-square-foot single-family home (pictured) has three bedrooms and two bathrooms. Built in 1964 it has a tuck-under garage. However, we can't guarantee that if you buy it, you'll also gain even a quarter of Buffett's wealth.
Mobile goes by the slogan "secretly awesome," according to its tourism website, and is near Pensacola, Fla. It was also recently ranked No. 2 in U.S. metro cities with the highest economic growth potential by Business Facilities magazine, coming in behind Baton Rouge, La.
List Price: $69,900 - At 2,300-square-feet, this four-bedroom home has so much space for the money. The large living room leads to the family room with a gas-log fireplace. Its family room opens up to the kitchen and dining area, according to the listing. Out back, a patio leads to a guest apartment, which has a full bath and a kitchenette.
Louisville is home to the Kentucky Derby and the Muhammad Ali Center. The city also recently noted on its website that it has regained all 42,000 jobs that were lost during the recession. Louisville is outperforming several peer metro areas in post-recession job growth. Among the 100 most populated metro areas, the Louisville metro area ranked 26th in recovering from the recession, according to the Brookings Institution's Metro Monitor.
List Price: $100,000 - With three bedrooms, two full baths and hardwood floors, this pictured home has a large living room that goes across the whole front of the house. There is also a two-sided staircase, and a full bath on each floor. "The large backyard is perfect for family gatherings," says the listing.
Ranked at number 12 among the DMAs, it is hard to call Indianapolis a small town, but this Midwestern city about a two-hour drive from the Chicago metro area does have a small city feel, in comparison.
List Price: $100,000 - With 3 bedrooms and 2,635 square feet, this home is a bargain for a city of its size. Built in 1922, it has a covered porch, hardwood floors and stairs.