12 cities where home buying is cheaper than renting in 2021

April 30, 2021 2:14 PM

The housing market has exploded since the pandemic arrived last year. Supply withered and geographic patterns shifted. Home prices shot up at a staggering pace while borrowers tried to take advantage of rock-bottom mortgage rates.

The 2021 marketplace started off white-hot and consumers must weigh the economics between buying or renting. However, some metro areas offer better opportunities to prospective buyers, especially as interest rates hover near 3% and combine with the Biden Administration’s efforts to help first-time home buyers.

Of the top 50 U.S. housing markets, 15 provide cheaper monthly payments for the median home compared to renting a similar property, according to a Realtor.com report.

“This is encouraging news for the millions of millennials who are approaching peak homebuying age and may be considering shopping for a home this spring," Realtor.com chief economist Danielle Hale said in the report. "With interest rates expected to rise over the coming months, buyers may need to act sooner rather than later to take advantage of today's affordability or be prepared to adjust their target purchase price."

And on the other end of the spectrum, the below chart shows the top seven cities where it's cheaper to rent than buy.

Realtor.com based its March analysis of the 50 largest metros by total households. Monthly purchasing costs assumed a 30-year fixed-rate mortgage with a 20% down payment and included taxes and insurance. A monthly buy versus rent ratio under 100% means it’s more advantageous for consumers to purchase.

From the Keystone State to across the Rust Belt, local lenders in the top 12 cities where it’s cheaper to buy discuss what uniquely drives the current affordability in their respective markets.

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12. Philadelphia, Pennsylvania

City of brotherly tax breaks

Median monthly cost to buy versus rent ratio: 97.3%

Local lender: Jason Griesser, branch manager/SVP of mortgage lending at Guaranteed Rate. Griesser has served the Philadelphia area for 22 years.

What makes the Philadelphia market unique so that it’s cheaper on average to buy instead of rent?

Philadelphia is one of the country’s oldest cities. Zoning and developing in some areas of the city may present unique challenges. However, Philadelphia County has an incredible tax abatement allowing for property taxes to be calculated on the land alone for true new construction. On rehabbed properties, you can be exempt from the improvement assessments.

This leads to depressed property taxes that creates a huge level of affordability in our market. This affordability can be taken advantage of at every price level for all homebuyers — not just certain price points or neighborhoods. That sweeping advantage keeps our affordability high and ultimately keeps the overall purchase market strong.

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11. St. Louis, Missouri

Hitting the sweet spot

Median monthly cost to buy versus rent ratio: 96.5%

Local lender: Matthew Levison, president of Delmar Mortgage. Levison has served the St. Louis area for 22 years.

What makes the St. Louis market unique so that it's cheaper on average to buy instead of rent?

It may not have the flashy allure of a bigger city like Chicago, but the reasonable home prices, job growth, large employers, excellent schools, lack of traffic, food scene and entertainment really make for a great mix of everything you’d need.

St. Louis is right in the sweet spot of home prices. You get a lot for your money compared to other cities. That, coupled with the incredibly low interest rates you can currently take advantage of make it an excellent time to become a homeowner. Many of our clients are using this opportunity to purchase rental properties as rents continue to rise, while the cost of a mortgage is near all-time lows.

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10. Detroit, Michigan

Don't call it a comeback

Median monthly cost to buy versus rent ratio: 94.6%

Local lender: Randy Gammo, executive loan officer at National Mortgage Home Loans. Gammo has served the Detroit area for 20 years.

What makes the Detroit market unique so it’s cheaper on average to buy instead of rent?

The reinvigoration within the city of Detroit, combined with the strong demand in suburban living, makes the market unique. Not many places have such a large city that is as heavily invested in. Rent prices have not dropped during the housing recession or during COVID, mainly because of the strong job market and economy.

Contrary to popular belief, Detroit remains one of the highest rates in the country for ROI on investment properties, keeping rent prices at all-time highs. The obvious tax benefits make home buying more affordable and more attractive than renting.

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9. Hartford, Connecticut

Beating out the inflation rate

Median monthly cost to buy versus rent ratio: 93.5%

Local lender: John Hodgkins, branch manager at Guaranteed Rate. Hodgkins has served the Hartford area for 18 years.

What makes the Hartford market unique so it’s cheaper on average to buy instead of rent?

Hartford has an outstanding school system, attractive city centers, and strong mid-level management job opportunities in finance, manufacturing, and distribution. The city has a small-town feel and is located between Boston and New York.

Monthly rent payments have increased every year at above normal inflation rates while interest rates moved in the opposite direction, well below historic averages. This, combined with all of the amazing options buyers have to minimize their down payment percentages or initial investment alongside the relative accessibility to mortgage options, makes buying compelling for any buyer who can commit to a location for 3 to 5 years or longer.

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8. Tampa, Florida

A bit of a fixer-upper

Median monthly cost to buy versus rent ratio: 93.1%

Local lender: Andy Wood, owner and mortgage broker at Titan Home Lending. Wood has served the Tampa area for 21 years.

What makes the Tampa market unique so it’s cheaper on average to buy instead of rent?

Downtown Tampa and St. Petersburg used to only have a handful of high rises and even fewer restaurants, shops and entertainment. Now they are full of life and things are booming. With the shift back to urban life and high-density zoning, apartments have popped up everywhere in and around town. Tampa Bay has never seen “high end” apartments with lavish amenities. The rents are extremely high to cover the high development costs and land prices in downtown.

Aside from the downtown and waterfront areas, land is inexpensive in the Tampa Bay region. This allows developers and builders to sell homes for less money and have economies of scale for huge neighborhoods. They don’t have to hit a homerun on every home, making them more affordable.

Tampa Bay also has a lot of smaller and older homes built in the 40’s, 50’s, 60’s and 70’s. Many need work, room additions and modernization. Our area is full of construction, renovation and contractors. This keeps the pressure down on overall prices for homes.

Baltimore, Maryland.

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7. Baltimore, Maryland

What's old is new again

Median monthly cost to buy versus rent ratio: 92.2%

Local lender: Franco Greco, senior vice president at NewDay USA. Greco has served the Baltimore area for nine years.

What makes the Baltimore market unique so it’s cheaper on average to buy instead of rent?

Baltimore has a homey feel, right around the water and it’s a place where a lot of young professionals want to live. Normally a city has the most expensive area pricing but the surrounding counties and suburbs are just exploding. It’s also a driving community with so many jobs and government employment in the suburbs.

There's just a ton of investment in the area. If you rehab a home, you get a tax discount through the City Historic Tax Credit Program. A lot of investors have come in and remodeled a ton of homes. And they get this tax credit when they sell it to the first buyer. So because the city has that program, every house in Canton, Fells Point and Capitol Hill is like-new even though some of them were built back in the 1900s.

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6. New Orleans, Louisiana

The melting pot of bon temps

Median monthly cost to buy versus rent ratio: 90.7%

Local lender: Kate deKay, CEO of Eustis Mortgage. deKay has served the New Orleans area for 14 years.

What makes the New Orleans market unique so it’s cheaper on average to buy instead of rent?

It’s one big melting pot of culture, accents and traditions, and that mixture makes our market appealing to so many. We have many housing options throughout the city with areas that are majority rental properties and only a few blocks over could be the mansions of St. Charles Avenue with a parade rolling down the street. With the changing work environment and companies, employees are realizing they can work remotely from anywhere.

The median house in the New Orleans-Metairie area goes for $320,000 and has a mortgage of $1,401 on average, whereas rent is $1,545. Historically low interest rates enable this to occur. With Biden’s recent “Downpayment Toward Equity Act of 2021”, I only see this increasing. First Time Home buyers may receive up to $20,000 in assistance, or $25,000 in assistance if the home buyer qualifies as a “socially and economically disadvantaged individual”. This assistance would cover the entire down payment for the average median sales price in the New Orleans area, plus the closing costs associated with a home purchase.

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5. Miami, Florida

The Northern exodus

Median monthly cost to buy versus rent ratio: 89%

Local lender: Jorge Malo, broker and owner of My Florida Mortgages. Malo has served the Miami area for seven years.

What makes the Miami market unique so it’s cheaper on average to buy instead of rent?

People here from South Florida avoid the Miami area. They will try to live in Broward, Lloyd, or Palm Beach. But people are coming down from the north by the thousands since you can work anywhere under COVID-19 and Miami is famous so they go there.

That’s not going to last, right? Eventually, they’ll have to go back to their offices. They’re not going to leave their job in New York to start a new job in Florida with a lower income. But that’s all pushing the rents higher and not so much the purchase prices.

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4. Riverside, California

Location, location, location

Median monthly cost to buy versus rent ratio: 87.7%

Local lender: Matt Rundle, branch manager at Westin Mortgage, a Mountain West Financial company. Rundle has served the Riverside area for 38 years.

What makes the Riverside market unique so it’s cheaper on average to buy instead of rent?

Rents have always been high in Southern California. Los Angeles, Orange and San Diego counties all have both extremely high sales prices and rents. The Inland Empire — an area encompassing Riverside County and San Bernardino County — touches those three and is super affordable in relation to its neighbors.

Riverside and San Bernardino also have lower household income levels in relation to Los Angeles, Orange and San Diego, per the U.S. Census Bureau. I feel this has an impact on the eligibility of Inland Empire residents seeking out homeownership and, in turn, leads these residents into renting. This makes Riverside a golden area for affordable homebuying.

Pittsburgh, Pennsylvania.

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3. Pittsburgh, Pennsylvania

Not just an old mill town

Median monthly cost to buy versus rent ratio: 86.5%

Local lender: Jonathan Freed, managing partner and David Holland, president at Holland Mortgage. Freed and Holland have served the Pittsburgh area for 20 and 21 years, respectively.

What makes the Pittsburgh market unique so it’s cheaper on average to buy instead of rent?

Older housing stock, multiple up-and-coming neighborhoods, multiple redevelopment and new construction in urban areas. These have been brought back to life but still retain their charm. Pittsburgh has seen a lot of appreciation in the past two years, but not as rapidly as other pockets of the country. It’s an affordable city with high wages and low property values. Nationally, our home prices are always underneath the average, even before the Great Recession.

Pittsburgh’s been an undervalued market but it’s started to reinvent itself. We're not just an old mill town. Google has an office here. A lot of new people are coming in for the universities, healthcare and even tech startups. They’re buying and fixing up homes, and gentrifying areas. And so it's choked up the supply of potential rentals and prices aren’t keeping pace with the increased rent values. It’s like a seesaw and I’m not sure how much longer it’ll last.

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2. Chicago, Illinois

Diverse housing stock has something for everyone

Median monthly cost to buy versus rent ratio: 85.6%

Local lender: Matt Lind, real estate broker at Compass. Lind has served the Chicago area for 11 years.

What makes the Chicago market unique so it’s cheaper on average to buy instead of rent?

Chicago is a world-class city with an approachable price point for homeowners in a variety of neighborhoods and different collared suburbs. As an architecturally significant city, we are also home to a variety of housing stock — from 19th century greystones to modern glass skyscrapers — coexisting side-by-side. Clients coming from the East and West coasts are excited about the prospect of owning something larger than a shoebox for the first time.

Buying entails certain transactional costs, taxes, and maintenance that lead some to conclude renting is the "more affordable" option — which may be true in the first year or two. But landlords are looking to make a profit, so the tenant typically pays the landlord to cover their costs of ownership (including taxes, maintenance, etc.) plus some profit margin. At the end of a five-year lease, you walk away with nothing. At the end of five years of ownership, you have built equity in the property and stand to benefit from natural appreciation over time. Property ownership also allows for a multitude of tax benefits that can be leveraged to further increase the return on investment.

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1. Cleveland, Ohio

A great rebound from the Great Recession

Median monthly cost to buy versus rent ratio: 80.9%

Local lender: Valerie Stefancin loan originator at Schmidt Mortgage Company, a division of Mid America Mortgage. Stefancin has served the Cleveland area for 35 years.

What makes the Cleveland market unique so it’s cheaper on average to buy instead of rent?

The many people who suffered with their credit and lost their homes as a result of the financial crisis were forced to be in a rental situation. Cleveland got hit especially hard. So rental demand increased and caused the prices to increase as well. Landlords were able to increase the rents and they of course did not come down.

Now with interest rates being so low, people can afford to buy much more of a house for equal to or even less than what their rent is. I personally have buyers that have come back from Florida, Washington, and California. Sometimes it’s for family but it's also because our cost of living is so attractive.