You’re in the market for a new home, but those prices seem out of reach. At what point is it better to rent rather than buy?
The average sale price of a home nationwide is around $520,000, according to the U.S. Census. In Denver it’s even higher at nearly $575,000, according to Zillow, making it one of several cities across the country where experts say it’s cheaper to rent than buy.
Zack Neumann knows all too well what happens when homeownership is out of reach. He is the co-founder of the Community Economic Defense Project. One of the organization’s main goals is to help homeowners who currently face eviction.
“Almost every eviction we see is a nonpayment eviction because people are spending 50, 60, 70% of their post-tax income on housing,” Neumann said.
He adds that even when the mortgage payment is met, other factors can make homeownership unaffordable. “They’ve been making payments, and their HOA has charged them fees, and now suddenly they’re getting foreclosed on because they can’t afford these additional HOA fees,” said Neumann.
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Real estate giantRedfin recently compared median mortgages versus rental payments in the 50 largest cities in America. Only four cities — Cleveland, Detroit, Houston and Philadelphia — show mortgage rates that are less expensive than renting. That same study showed 0% of homes are cheaper to buy than rent in places including San Jose, San Francisco, Oakland, Anaheim and Seattle.
Even cities that were once affordable became unaffordable during the pandemic. Cities like Sacramento, Las Vegas, Phoenix and Austin all saw a huge population increase as remote workers moved to more desirable cities.
Neumann says supply and demand could be the biggest factor — and there are simply not enough homes available.
“It’s hard to get into a home. And now with interest rates having gone up so much, a lot of folks have this good 2, 3, 4% pandemic mortgage and just don’t want to move,” Neumann said.
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According to Redfin, a drop in mortgage rates would also shrink premiums and turn the tides in cities where renting makes more sense.
However, Neumann says, until major factors change, renting will continue to be the best option financially.
“I think we want to live in a world where most people can afford to buy a home and they can stay in that home, and they can pass that home on to future generations or sell it and use the money from the sale of that home in 20 or 30 years to fund their retirement. But that is not the world we’re living in,” Neumann said.
