Owning vs. Renting in Today’s Market

Published: Nov 23, 2015

Despite what you already know about the advantages of owning a home ─ the American dream, building and borrowing against your equity, and tax deductions for mortgage interest and property taxes – you may be surprised to learn that today, in many markets across the country, it is also less expensive to own a home than it is to rent.

True, you can’t simply call the landlord to repair the AC or to fix that dripping faucet, but with high demand and low supply across much of the country, renting has become more expensive than owning a home ─ even when you are the one footing the repair bills.

Rents Outpace Home Values

Since 2000, rents have been on a steady rise while home prices took a tumble during the mortgage crisis and are only now recovering. Victims of the crash are skittish to reinvest, Millennials are enjoying the mobility of renting, and Baby Boomers are downsizing. There's also a shift to urban living ─ areas chockfull of newly constructed, high-end luxury rental units.

Since April 2014, rents increased faster than home values in 20 of the 35 largest U.S. markets with San Francisco leading the pack at almost 15%, followed by San Jose, 12.9%, Denver 11.6%, and Kansas City, MO, 9.5%.

And, as rents continue to rise against relatively flat incomes, so does the percentage of monthly income being gobbled up by rent. Today, the average renter spends more than 30% of their income on rent, compared to homeowners that spend only just over 15% of their monthly income on their mortgages.

How Much is Too Much?

Ideally, no more than 25% to 35% of monthly net income should be spent on rent. However, Zillow found 90 cities where the median rent was more than 30% of the median gross income.

In the August 2015 issue of Money Magazine identified six U.S. cities where renters are spending nearly 50% of their income on rent.

So, as rents spiral to new levels, home prices remain affordable, and mortgage rates are still at historical lows, why aren’t more renters making the move to homeownership?

Making Homeownership a Reality

My Home at Freddie Mac provides a Rent vs. Buy calculator that helps an individual analyze their options. It is our understanding that your name and information is NOT forwarded to a real estate agent or mortgage lender. You can access that calculator by clicking the button below:

One obstacle that keeps many otherwise qualified home buyers from pulling the trigger on home ownership is the down payment requirement. It’s not a surprise that paying such high rental rates makes it difficult to save for a down payment. But falling short of a full 20% down payment isn’t necessarily a dead end.

There are several state and local programs that offer at least some assistance and loan products with low or no down payments that could make homeownership a reality for many.

Employer Incentives

Some employers are also stepping in to provide employee incentives to live and invest in homes that are closer to work or that are part of a city’s revitalization initiative.

As part of the Live Downtown program, Quicken Loans, Compuware, DTE Energy, Blue Cross Blue Shield of Michigan, and Strategic Staffing Solutions are providing financial incentives to help revive the downtown Detroit area.

Among other homeowner and current renter incentives, new homeowners receive a $20,000 forgivable loan toward the purchase of their primary residence in the downtown area. According to Stacy Miller, Relocation Account Manager with Quicken Loans, since the program began in 2011, more than 1,100 Quicken Loans team members have taken advantage of the Live Downtown incentives, making the downtown Detroit revitalization initiative a huge success.

As an employer, there are even some things you can do to help your employees take advantage of the current favorable buyer’s market. One no-cost solution is to offer all of your relocating employees home finding assistance, where they receive destination counseling and referrals to a qualified home finding real estate agent and mortgage lender to help streamline the process.

Some companies help by extending home purchase benefits to relocating renters to offset some of the employees’ closing costs.

The Bottom Line

There is no right or wrong answer as to whether it is more advantageous to rent or buy. Each decision should be based on individual goals, finances, and lifestyle preferences. There are numerous online calculators available to consumers that weigh the many different variables of owning and renting and provide an estimated cost comparison to help aid in that very important financial decision.