Buying a home is now cheaper than renting in a substantial majority of U.S. cities, even though more Americans are becoming renters due to choice or necessity, according to a new report.
A new analysis by real estate data company Trulia calculated that it is more affordable to buy a home than to rent in 72 percent of the nation's 50 largest metropolitan areas. In only four cities - New York, Seattle, Kansas City (Mo.) and San Francisco - was renting found to be clearly the more affordable option.
"Since the start of the 'Great Recession,' many former homeowners have flooded the rental market," said Pete Flint, Trulia CEO and co-founder. "Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets."
He noted that tighter lending practices have played a role, as even highly qualified potential borrowers must undergo intense financial scrutiny in order to qualify for a mortgage.
The cities where buying was deemed more affordable than renting tended to be those with high levels of foreclosures and unemployment, factors which also reduce the pool of qualified buyers. The two cities where buying was deemed most affordable were Miami and Las Vegas, both of which have regularly ranked among the nation's hardest-hit housing markets since the economic downturn began. In both cities, median home prices were only six times the median annual rent for a two-bedroom home.
By contrast, New York City offered the greatest relative advantage to renters, with median home prices 31 times higher than one year's rent on a similar property.
"Although owning a home is relatively more affordable in most cities, market conditions have caused an interesting demographic swap between traditional renters and buyers," said Tara-Nicholle Nelson, a Trulia spokeperson. "For example, lifelong renters are seizing the opportunity to become homeowners while affordability is high. At the same time, a growing number of long-time homeowners are finding themselves tenants - some by choice and others by necessity."
Cities where median home prices were no more than 15 times greater than the annual cost of renting a similar home were deemed more affordable for renting, while those where the cost was 20 times greater were deemed more affordable to rent. Ten cities, or 20 percent of those in the study, fell within the 16-20 range, where renting was less expensive but other factors might still make purchasing a home the more financially attractive option overall.