Where is it cheaper to rent than to buy a home in the United States?

05 Sep

According to a new study from Clever Real Estate, a St. Louis-based real estate company, monthly rent costs are actually cheaper than a monthly mortgage payment in 48 of the 50 most populous cities in the United States.

Their analysis looked at mortgage principals, interest, taxes as well as homeowners insurance and they found that the monthly cost of owning home is more affordable than rent in only two cities, Cleveland and Pittsburgh.

 The report used a price to rent ratio that was calculated by dividing the median home price by the median annual rent. A ratio of 15 or less shows that buying is the better strategy while a ratio of 21 or higher is an indication that renting is a stronger option.

If just the ratio is considered and the additional monthly costs that occur with a house are not factored in, it is better to buy a home in 18 of the 50 most populous U.S. metros.

According to Clever Real Estate data, Cleveland is the best major city for homebuyers with a price to rent ratio of 11. Cleveland also has the lowest average home prices at $187,413 of the 50 most-populous U.S. metros. The national price to rent average is 14.3 which is an increase from 13 in 2019.

The data found that the average monthly mortgage payment in Cleveland was only $1,331, while the average rent hit $1,426 which is $95 more per month, or $1,140 yearly.

San Jose, which was the most expensive metro the study looked found that renters there could save a shocking $5,598 per month when compared to purchasing a home. 

The study found that most affordable cities for home buyers based on price-to-rent ratios are:

CityPrice-to-Rent RatioAverage Cost of Homeowners Insurance Per Year
Cleveland11 $                                          884
Pittsburgh11.9 $                                       1,730 
Chicago12.1 $                                       2,805 
New Orleans12.8 $                                       4,980 
Memphis12.9 $                                       3,936 
Birmingham13.2 $                                       3,692 
Detroit13.6 $                                       2,327 
St. Louis13.6 $                                       2,645 
Cincinnati13.8 $                                       2,132 
Indianapolis13.9 $                                       1,831 

One the flip side of the coin, these cities are where renting is still a better move financially if you are only concerned about a monthly payment

CityPrice-to-Rent RatioAverage Cost of Renters Insurance Per Year
San Jose37.6 $                                                                     249 
San Francisco30.7 $                                                                     277 
Los Angeles26.4 $                                                                     250 
Seattle25.9 $                                                                     162 
Salt Lake City25.6 $                                                                     168 
San Diego24.1 $                                                                     194 
Portland24.1 $                                                                     143 
Denver23.2 $                                                                     132 
Austin21 $                                                                     167 

While 57% of Americans believe renting is a waste of money as you are not building equity in a property, the average home price has skyrocketed in recent years. Data shows that average home prices have risen 39% more than the average rent over the last 5 years and a whopping 72% in the past year. 

Although 57% of Americans believe renting is a waste of money, the average home price nationwide has risen 39% more than the average rent over the past five years and 72% faster in the past year.

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