Many renters think they’re saving money by renting, but long term, that might not be true. In some of the U.S.’s largest metros, a monthly mortgage payment is less expensive than the average rent. But there are many factors surrounding affordability—how do city dwellers make this decision?
A report from Zillow Home Loans published in September outlines some key trends and factors for renters to consider when evaluating a home purchase. Here are some key takeaways from the report:
New Orleans, Chicago and Pittsburgh offer the greatest savings
If a shopper has a 20% down payment and 30-year fixed mortgage rate, they could be looking at upwards of $300 in savings across the top three metros in the report.
- In Chicago, the typical rent payment is $2,074 per month, but a monthly mortgage payment is $1,640 – a savings of nearly $434 a month by owning rather than renting.
- In New Orleans, homeowners can also save $446 a month paying a mortgage rather than renting.
- In Pittsburgh, the savings are about $321 a month.
Other cities on the list include Miami, Houston and St. Louis. You can view the full list here.
Buying over renting: A trend across the U.S.
The trend of a mortgage payment being more affordable than rent holds true across the U.S. The typical rent payment across the country is $2,063 a month, but the typical mortgage payment is $1,827—a savings of $236 a month by owning rather than renting.
The report offers context: Rent growth has come down from pandemic-era highs and returned to long-run norms, but prices are still climbing. The typical rent is 3.4% more expensive than a year ago and nearly 34% more expensive than before the pandemic. The for-sale market, on the other hand, is offering opportunities for buyers heading into the fall, with more than 1 in 4 sellers cutting prices. With inventory up 22% compared to a year ago, buyers are gaining bargaining power.
And according to Zillow Home Loans Senior Economist Orphe Divounguy, homeownership may be more within reach than most renters think. “Coming up with the down payment is still a huge barrier, but for those who can make it work, homeownership may come with lower monthly costs and the ability to build long-term wealth in the form of home equity – something you lose out on as a renter,” says Divounguy.
Need help advising on rent vs. buying? Consider the pros and cons of each.
Tracking affordability over time
With rents climbing and the for-sale market softening, including a rise in inventory, now is a great time to help home shoppers understand their affordability. Zillow Home Loans’s Buyability tool is a great way to kick off that conversation. With just a few inputs, prospective home buyers can get an idea of how much they can afford, and their likelihood of getting pre-approved for a mortgage. Buyers can check their BuyAbility regularly on the Home Loans tab on Zillow’s app to see how their estimate changes with current mortgage rates or a change to their credit score.
“With mortgage rates dropping, it’s a great time to see how your affordability has changed and if it makes more sense to buy than rent,” said Divounguy.
