Strictly from a cost perspective, renting proved the more prudent financial choice in 48 out of the top-50 markets in the second quarter of 2024 — until recent home equity gains are tallied, that is.
In fact, it was cheaper to own in 29 of the top-50 markets, including the two of most expensive rental markets, San Jose and San Diego, after the accumulated equity of strong home price appreciation was factored in, according to a second-quarter rent-versus-own analysis performed by First American’s Deputy Chief Economist Odeta Kushi.
The analysis compares monthly rental payments with the cost of homeownership in the top-50 U.S. metropolitan areas, and includes rent data based on 2023 American Community Survey figures, adjusted to Q2 2024 using the Zillow Observed Rent Index. Homeownership costs include mortgage payments, taxes, insurance, and maintenance, assuming a 5% down payment and a 7% interest rate. Additional costs include private mortgage insurance and homeowner’s insurance. The analysis also factors in house price appreciation, adjusting the monthly homeownership cost by subtracting the monthly equity gain or loss.
"Consider a potential first-time home buyer in San Jose, where home prices are among the highest of the top 50 markets. If the home buyer put a 5% down payment on a $1.1 million home (the 25th percentile home price in San Jose in the second quarter) with a mortgage rate of 7%, the home buyer would have paid roughly $7,000 monthly in principal and interest, plus an estimated $2,500 in taxes, repairs, private mortgage insurance, and homeowner’s insurance costs," the report read.
Kushi writes that the scenario brings the home buyer’s total monthly cost of ownership to approximately $9,500. House prices in San Jose, Calif. increased nearly 8% year over year during Q2 2024, which equates to an equity benefit of approximately $7,300 each month if the pace of appreciation remains the same. The resulting total monthly cost to own is $2,150.
Compared with the median monthly cost of rent, $2,700, it made more financial sense to buy than to rent in the second quarter.
Conversely, Kushi identified one market in the analysis where house prices declined on an annual basis – Austin, Texas. If the home buyer put a 5% down payment on a $355,600 home (the 25th percentile home price in Austin in the second quarter) with a mortgage rate of 7%, the home buyer would have paid roughly $2,250 monthly in principal and interest, plus an estimated $1,020 in taxes, repairs, private mortgage insurance, and homeowner’s insurance costs.
That scenario, Kushi wrote, brings the home buyer’s total monthly cost of ownership to approximately $3,270. The average house price in Austin decreased 1.2% year over year in the second quarter of 2024, representing an equity loss of approximately $350 each month if the pace of depreciation remains the same. The resulting total monthly cost to own is approximately $3,600.
Compared with the median monthly cost of rent, $1,530, it made more financial sense to rent than to buy in the second quarter.
