Home Buying 38 Percent More Affordable Than Renting

Based on Trulia’s recent Rent Versus Buy Report, homeownership continues to be a cheaper option than renting with a traditional 30-year fixed rate mortgage in all the 100 largest metropolitan areas in the United States.

The report shows that buying a home is actually 38 percent cheaper than renting, which is slightly higher from last year’s rate of 35 percent. The baseline model comprises of a 20 percent down payment 30-year mortgage, 25 percent tax deductions, and the homeowner living there for seven years.

According to Trulia, there are two reasons with the widening gap. First, the 30-year fixed-rate mortgage rate has dropped from 4.8 percent to 4.3 percent in the past year. Second, rental prices have increased faster than home prices, excluding foreclosures. The combination of these trends makes home buying more affordable than renting.

The gap between the costs of buying a home and renting varies across the different metros since each market has their own prices and rents. Plus, property taxes and home price appreciation differ from place to place. Taking all these factors into consideration, buying ranges from 17% cheaper than renting in Honolulu to 63 percent more affordable than renting in Detroit.

Another interesting fact in Trulia’s report is that renting may be favorable in some markets next year if home prices continue to increase at a greater rate than rental prices, and if mortgage rates rise due to the strengthening economy, with the latter being expected by most economists.

Furthermore, nationally, home-buying rates would need to jump at 10.6 percent for renting to become more affordable that buying. However, such rate hasn’t been reached since 1989.

Generally speaking, buying a home remains to be a more sensible choice than renting since rental rates have inflated at a higher rate.

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U.S. 30-Year Mortgage Rate Increased to 4.02%

According to a recent report released by Freddie Mac, the average U.S. long-term mortgage rates rose back over 4 percent. This is the second week of the rates increasing after it has dropped for five weeks even with the problems in the global economy.

Last Thursday, from 3.98 percent last week, the nationwide average of a 30-year-mortgage rose to 4.02 percent. But even with such increase, the mortgage rate remains to be at its lowest level since June 2013. The 30-year-mortgage rate reached 4.53 percent last January.

As for the 15-year mortgage, which has become a popular choice for refinancing individuals, it has risen from 3.13 percent to 3.21 percent. The one-year adjustable rate mortgage rose from 2.43 percent to 2.45 percent.

The drop in the rates during the five weeks has caused some homeowners to search for refinancing mortgages at a bargain rate.

Freddie Mac conducted a survey across the country from Monday and Wednesday weekly to calculate the average mortgage rates. Extra fees or points, which most borrowers need to pay to get the lowest rates isn’t included in this average.