Homeownership has long been considered an essential component of the American Dream. Owning a home signifies financial stability, putting down roots, and transitioning into adulthood. Renting, on the other hand, is often seen as throwing away money.
But the ideal of homeownership is a relatively recent concept. Fewer than half of the American population owned a home until the 1940s, when a law was passed to make government-subsidized mortgages available to the middle class. Today, around 66% of the U.S. population owns their own home. But with skyrocketing interest rates, low inventory, and record high real estate prices, does buying a home still make financial sense?
The research team at Today’s Homeowner compared the costs of owning and renting over a 30-year period to determine which move saves the most money. We also surveyed 1,000 current renters about the barriers they face in the path to homeownership. For more details on how we collected and analyzed our data, please see the methodology section.
The findings may be a surprise for homeowners and renters alike: In some areas, homeowners will spend more than renters over a 30-year period.
Key Findings
Long-term renting is currently cheaper than homeownership in 46 of the 97 major cities we researched.
69% of renters believe that renting is the best financial decision for them right now.
Renters will spend an average of $1.26 million over the course of 30 years while homeowners will spend $1.30 million.
Just 9 out of the 97 cities we analyzed had monthly mortgage payments that were cheaper than monthly rental payments.
Just 9 out of the 97 cities we analyzed had monthly mortgage payments that were cheaper than monthly rental payments.
Owners come out ahead of In at least seven major cities in California, long-term renting is cheaper than owning a home. Renters save $900,540 on average in California over a 30-year period. in at least 51 U.S. cities. On average, owners saved $175,811 over a 30-year period.
Where Is It Cheaper to Rent Than Buy?
Our study found that long-term renting is cheaper than homeownership in 46 out of 97 cities, which is likely due to rising interest rates, soaring home prices, and high down payments. California cities occupy seven of the top 10 spots on the list of places where renting is more affordable than buying. A renter in Irvine, California, for example, will save almost $1.3 million over 30 years by renting their home instead of buying. In four California cities, mortgages require a downpayment that could cost buyers as much as $90,000.
The three non-California cities in the top ten are Arlington, Virginia, Austin, Texas, and Madison, Wisconsin. While down payments in these cities are in a more modest range of $28,000 to $52,000, renters can still expect to save around $400,000 to $600,000 over 30 years.
Where Is It Cheaper To Buy Than Rent?
There are still many places in the U.S. where buying a home is cheaper than renting over a 30-year period. Our list of the top 10 cities where owning is cheaper features geographically diverse locations, including cities on the East Coast and in the South and Midwest. New York City is one surprising location where homeowners save over renters— owners will spend $2.1 million on average over 30 years while renters will spend $2.4 million.
Down payments are also not prohibitively costly in the top 10 cities where it’s cheaper to buy than rent. In Detroit, Michigan, for example, a down payment could be as low as $5,950, while in Baltimore, Maryland, it could be just $15,400. In Nashville, Tennessee — our number one spot — buyers will save almost $700,000 over renters.
Where Are Rents Cheaper Than Mortgages?
Even when considering the short-term benefits of renting versus owning, our study showed that renters come out ahead. We found that between August 2022 and July 2023, rental prices are lower than monthly mortgage payments in 88 out of 96 major cities. Not surprisingly, our top 10 list, where rents are cheaper than monthly mortgages, was again dominated by eight locations in California, where housing prices are at all-time highs.
Rising mortgage rates are one reason for the high mortgage payments. Rates were historically low from 2008 until 2022. But over the past three years, rates have climbed from around 3% to 7% nationwide. As a result, mortgage holders in a city like San Francisco, California — which came in at number four on our list — can expect to pay about $8,000 in monthly payments compared to the average rent of around $3,500.
Financial Concerns Are the Biggest Obstacle To Buying
Many renters feel that homeownership is currently out of reach. Although 78.3% of renters aspire to become homeowners, 69.4% think renting is the better option right now, our survey found. One of their primary reasons for staying away from homeownership at the moment was the state of the housing market.
With down payments nationwide averaging just under $33,000, 59% of our survey respondents admitted they could not afford a down payment. They also mentioned rising interest rates and a lack of affordable local options.
Consumer debt is also a serious barrier to homeownership, according to 20% of the renters we surveyed. Inflation has meant that the cost of living has increased dramatically for most people, and salaries haven’t kept pace with those costs. Credit card debt alone has skyrocketed nationally to $986 billion, up from $927 billion before the pandemic.
No Home Repairs or Bad Neighbors: The Pros and Cons of Renting
There are advantages and disadvantages to renting your home. Our survey found that 62% of respondents noted that avoiding housing costs was an important consideration when choosing to rent instead of buy.
These costs can be steep. A roof may need to be replaced twice over a 30-year period, which can cost about $12,000 on average. Other major expenses of homeownership include replacing HVAC systems or furnaces, which can cost up to $9,000. Even a single window costs between $400 and $1,000 to replace. Overall, homeowners can expect to pay up to $90,000 on average on home repairs over a 30-year period.
But renting is not without its drawbacks. Some concerns with renting that survey respondents highlighted include getting stuck with bad neighbors (49%) and the possibility of eviction (48%). The Department of Housing and Urban Development estimates that around 2 million renters face eviction proceedings each year, particularly in low-income areas affordable housing is in short supply.
Our survey also found that 46% of respondents say not being able to build equity is a disadvantage of renting. Ideally, homeowners can borrow from their home equity to cover expenses or make improvements and eventually make a profit when they sell their homes. Currently, homeowners nationwide have an estimated $136,000 in home equity.
Final Takeaways
So is renting or buying the better option? It depends. For those in markets where housing prices have skyrocketed, renting may be the way to go for both short- and long-term scenarios. But in many places owners will still come out on top even with higher interest rates — especially if they intend to stay in their houses for the long term.
Buying a house may not be the right choice for everyone financially. Potential homeowners need to base their calculations not only on where they live, but also on whether both the short- and long-term costs of homeownership make sense for them.
Meet Our Experts
Professor of the Practice of Economics and Director of Undergraduate Studies in the Economics Department
Duke University
Two types of inflation have vastly reduced most people's ability to buy a home, but they have the same cause. First came home price inflation, which was caused in large part by the low interest rates and easy money policy pursued by the Fed during the pandemic (and for years before that as well). That was followed by goods and services inflation, which raised interest rates both through the Fisher effect and then from the Fed's changeover to a tight money policy aimed at getting the inflation they helped cause under control. Between the higher prices and higher interest rates, home affordability has plummeted.
Given the higher costs of purchasing, furnishing, and maintaining a home, home ownership is even more a sign of financial stability than ever before since only well-off households can afford to purchase homes now. This is not a positive development for our economy.
Shelter is a basic need, so paying rent is not throwing money away. And in some markets, renting is necessary because home prices and mortgage rates put homeownership completely out of reach for most people. The question most renters should ask is whether they really aspire to own a home or are comfortable renting for most of their lives. If people aspire to own a home, the need to save up for a down payment will definitely have to affect the rental choices they make.
Assistant Professor of Finance and Sustainability
School of Business at Stevens Institute of Technology
Inflation can impact the ability of people to purchase a home in two ways. The first way is that the interest rate charged on a mortgage loan will increase when inflation increases since mortgage loan interest rates typically follow the same path. This will make purchasing a home more expensive. However, inflation is transitory, which implies that a temporarily high inflation rate is followed by periods of lower inflation. The Federal Reserve targets an inflation rate of 2% over the long term. The Federal Reserve will raise the interest rate in periods of high inflation. This is necessary to slow down the economy and bring inflation down. The Federal Reserve will lower the interest rate to stimulate the economy and move inflation higher in periods of low inflation. This is the concept of transitory inflation.
Since the Fed raised rates which will also reflect in the mortgage rates. Mortgage providers will be assessing whether prospective home buyers can afford to repay their mortgages at higher interest rates. The increase in interest rates will also affect those with adjustable-rate mortgages. They will also impact homeowners who want to refinance their mortgage loan. Prospective home buyers will be more likely to adjust the amount they can borrow relative to their income and their mortgage terms. Prospective home buyers will delay their purchase of a home by using a mortgage loan until inflation has significantly dropped.
The second way is that inflation can also impact the selling price of homes. On the one hand, the selling price of homes will be lower when prospective homebuyers have less purchasing power during periods of high inflation. A lower demand for housing will reduce the price of homes. On the other hand, the selling price of homes will be higher when there is less supply of homes to keep up with the demand for homes. This is the case when home sellers want to avoid selling their homes since purchasing a new home will be more expensive. For example, purchasing a new home can be more expensive since the price of construction materials tends to be higher during periods of high inflation.
The perception that renting is a waste of money is most likely due to the fact that the rent you pay does not assist you in acquiring ownership of a home. There are two types of individuals who want to rent instead of purchasing a home. The first type of individuals are individuals who cannot afford to purchase a home in the short run. They may purchase a home at a later stage of their life when they have saved a sufficient amount of money to purchase a home. The second type of individuals are individuals who can afford to buy and turn to renting because they want to keep their flexibility to move around for their careers. Investing in a property requires the property owner to stay a few years in the property before the property becomes profitable. For example, a general rule of thumb in real estate is that it requires property owners to stay at least 5 years in their property before their investment becomes profitable in terms of recouping at least their purchasing costs. This also requires the property owners not to relocate for a new job only a few months later.
There are also some financial or tax benefits to renting compared to buying a home. If you decide to rent over owning a property, then you are not required to pay (1) maintenance costs or repair costs, (2) no real estate taxes, (3) no down payment for the purchase of the property, and (4) no purchasing costs. Moreover, cities often have rent controls that keep the rents affordable.
Executive Director, MRED/Fred E. Taylor Professor in Real Estate, W. P. Carey Master of Real Estate Development
Arizona State University
Inflation by itself was and is not the issue, rapid rent and sales price growth in the past 3 years has been the result of increased demand and very limited inventory. Homeownership and rent make up slightly more than 40% of the CPI, the common measure of inflation. So, the rise in rent and home prices has impacted inflation measurement.
Depends. On one hand, yes - a 30-year fixed-rate mortgage provides certainty but homeownership comes with other significant costs which can make ownership less desirable. People have to be ready for ownership and able to pay the costs of maintenance and upkeep.
Renting is either by necessity or a lifestyle decision. It is sometimes the more desirable and cost-effective way to achieve quality housing. The reason some say renters are throwing money away is because renting does not allow realizing equity through appreciation. The actual benefit is not that simple, and for some, the financial benefits do not warrant ownership. A portion of the Mortgage payment is essentially rent - the financing costs. Plus, there is the downpayment which for some is unattainable. Regardless you must pay to live someplace, the questions are where and what is the best value proposition that fits your life.
Methodology
To compare how much homeowners and renters would be spending over the course of 30 years, the research team at Today’s Homeowner analyzed housing cost data from Redfin and Zillow in 97 of the largest U.S. cities. We did not include utilities in our analysis, and keep in mind that these figures are rough estimates, not exact figures.
Homeownership costs:
- Total mortgage costs: The total mortgage payments were calculated using the average sale price of homes from July 2022 RedFin data and the average yearly interest rates from Freddie Mac from September 2022 to September 2023. We assumed a 7% downpayment.
- Property taxes: Median real estate taxes paid comes from the 2021 1- Year ACS.
- Maintenance costs: We averaged key home improvement costs using Angi estimates. We broke those down further into annual projects and singular projects based on how frequently the projects need to be completed.
- Annual projects: gutter cleaning, vent cleaning, full lawn service, HVAC repair, pressure washing.
- Singular projects: roof repair, resurfacing driveway, fence installation, siding replacement, window replacement, interior painting, replace HVAC, toilet replacement, deck repair, flooring replacement, mold remediation.
- Homeowners insurance: annual homeowners insurance premiums from 2022 Quadrant Information Services.
Rental costs:
- Rental housing costs: Average rent data comes from Zillow between August 2022 and July 2023. We estimated the increase in rent by calculating the average annual rental cost increases from the Department of Housing and Urban Development's fair market rents values. We increased rent every year for 30 years by this average and added it up to calculate total rent costs.
- Renters insurance: Annual renters insurance premiums from 2022 Quadrant Information Services.
Limitations:
Our calculations assume that rental costs will increase steadily over the next 30 years based on estimations and historical averages from HUD. We did not project estimated property tax increases. Homeownership and rental costs were calculated for a three-bedroom home.
Survey:
We surveyed 1,000 renters about their opinions surrounding renting versus purchasing a home. We also explored the reasons people decide to rent or buy property and when they want to become homeowners. The survey responses were collected September 13-14, 2023. Using raw survey data, we weighted responses to align with population demographics across age, gender, and income status to represent all U.S. adults.
Questions about our study? Please contact media@todayshomeowner.org.
Full Data
You can view our full dataset below.
Fair Use Policy
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