New research from the real estate website Trulia finds that homeownership is less expensive than renting in all of the country’s 100 largest metropolitan areas. The advantage narrows considerably, however, when the home buyer uses a low-down-payment loan insured by the Federal Housing Administration.
Nationally, the average cost of homeownership, including mortgage, insurance, taxes and maintenance, is 38 percent less than the cost of renting, according to the Trulia data. This is an even bigger gap than last year, when Trulia estimated homeownership was 35 percent cheaper.
One reason for the improved buying conditions is that the 30-year fixed interest rate for mortgages has been lower this year than last. And the other, said Jed Kolko, Trulia’s chief economist, is that rents are rising faster than home prices because of strong demand.
“Young adults are moving out of their parents’ homes now,” Mr. Kolko said. “For many people, the down payment is still a barrier to buying a home. And for people who lost a home in foreclosure, it might still be a while before they can buy.”
A separate study confirms the notion that even though it’s a good time to buy, many renters are stuck in place. A national survey sponsored by the Financial Industry Regulatory Authority, an independent securities regulator, found that 74 percent of renters have household incomes below $50,000, compared with 41 percent of homeowners, and an equal percentage find it either somewhat or very difficult to pay all their bills.
In addition, 58 percent of renters said they would be unlikely or unable to come up with $2,000 within 30 days to cover an unexpected expense — never mind a down payment on a house.
Trulia found that the advantage to be gained from buying is smaller in some metropolitan markets than in others, mainly those on the East and West Coast. In the New York area, for example, homeownership is 24 percent cheaper, while in Toledo, Ohio, it’s almost 60 percent.
Trulia’s calculations assume that the home buyer puts 20 percent down and has a 30-year fixed mortgage at 4.3 percent. The average rent and sales prices were derived by comparisons of similar properties in the same market, not simply the average for the market as a whole.
Trulia also compared the cost differences using other mortgage financing scenarios, based on a $250,000 home purchase that the owner sells after seven years. With a 15-year mortgage with a 20 percent down payment, the national cost advantage of buying soared to 43 percent. Although the mortgage payment would be higher on this loan, the rapid buildup in equity more than makes up for it, according to Mr. Kolko.
“Your equity is up to more than half the purchase price after seven years,” he said.
The reverse is true for a typical Federal Housing Administration loan with 3.5 percent down, which requires upfront and monthly mortgage insurance premiums, and builds equity much more slowly. In that case, the advantage dropped nationally to 25 percent. And in some metropolitan areas, the advantage was 10 percent or less.
Buying a home with an F.H.A. loan is still less expensive than renting almost everywhere (the exception being Honolulu) if you plan to stay for at least seven years and can benefit from the mortgage interest tax deduction, Mr. Kolko said. But financing a purchase this way could be more costly than renting for more mobile buyers, particularly younger people.
“People need to be realistic about their time frame,” Mr. Kolko said. “You need to do what you can to see into the future as to how many years you’re going to stay put.”