Mortgage Payments Are Lower Than Rent In 22 Of The 50 Largest US Metro Areas

The home of your dreams may be closer than you think.

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Home affordability continues to be an issue for potential buyers, but a recent Zillow Home Loans analysis reveals a shift in the market. It’s a perfect storm of factors that may make homeownership more cost-effective than renting.

As a result of recent dips in mortgage rates, Orphe Divounguy, Zillow senior economist, tells me that monthly mortgage payments have declined significantly. Also, he says over 25% of sellers are reducing their prices, and the housing inventory is 22% higher than it was a year ago.

On the other hand, Divounguy says that rent, on average, is 3.4 times more expensive than last year, and a whopping 34% higher that it was before the pandemic. And now, Zillow reports that mortgage payments are lower than rent in 22 of the 50 largest US metro areas:

Zillow Home Loans Data

Chart created by Terri Williams

Nationally, Duvounguy says it’s $236 a month cheaper to pay a mortgage than rent: the average monthly mortgage payment is $1,827, compared to the average monthly rent payment of $2,063. “The U.S. number factors in every single metro across the country, not just the 50 largest, so that’s why we see this trend at the national level where a mortgage is more affordable than rent in only 22 of the top 50 metro areas.”

He also says rents typically track closely with mortgage payments. “The exception is in the most expensive coastal metro areas such as San Francisco or Los Angeles where rent is still considerably more affordable than a typical monthly mortgage payment.”

In New Orleans, the average monthly savings for purchasing instead of renting is $446, and it’s $434 in Chicago, $321 in Pittsburg, and $314 in Miami.

Keep These Tips in Mind If You’re Thinking About Purchasing a Home

The Zillow analysis compares average or typical mortgage payments and rent payment amounts, but this doesn’t mean that every house is less expensive to purchase compared to renting. And don’t forget that when you purchase a home, you’re responsible for more than just the mortgage payment.

“Homeowners pay taxes, insurance, and utilities on a monthly basis, and buyers should be prepared for ongoing maintenance costs,” says Divounguy.

In addition, depending on where you live, rising insurance rates could make it difficult to get coverage.

On the other hand, renters have additional expenses as well – along with the threat of landlords increasing rent every year. “Renters also need insurance, and will often pay extra for parking, pets, and utilities, so they should take these costs into consideration when comparing rent versus homeownership,” Divounguy explains.

But if you want to take advantage of these recent changes and purchase a home, it’s important to do the following first:

Understand Your Budget

According to Brett Ringelheim, licensed real estate salesperson at Compass in New York, you need to understand your actual budget for a property. “To determine what you can afford on a monthly basis, you should speak with your lender when you go to get pre-approval.” Ringelheim says they’ll be able to help you understand exactly what you’ll be responsible for paying on a monthly basis.

His view is shared by India Headley, mortgage loan originator at UNMB Home Loans, Inc., who tells her clients to discover their buying power before building their wish list. “It’s essential to have a realistic dollar amount for purchase and monthly payment before you acquire champagne taste – if you do this the other way around, buyer sabotage can set in.”

Know Your Credit Score

You should also assess your credit, and Headley says this should be a top priority. “Your credit report is like your resume for buying a house, and lenders use it to determine your creditworthiness and previous experience managing different kinds of debt.” Your credit score heavily impacts your mortage rate, and research reveals your credit score can even affect your closing costs. “Right before applying for that home loan, let’s shed some light on your credit report, and check for any errors or improvements that can be addressed, so you’re putting your best foot forward to accomplish those home goals,” Headley advises.

Choose The Right Realtor/Broker

If you don’t already have a real estate agent or broker, Ringelheim recommends asking friends or family if they can refer one. “I always think a referral for a real estate agent is best, versus trying to find this professional on your own.” Buying a home can be extremely frustrating and stressful, and he believes that working with someone who was referred to you will help to build a trusting relationship.

When you find the right agent, Ringelheim says they need to explain the entire process to you. “What are the steps involved in buying, what should you, as a purchaser, be looking for in a property, what are the current market conditions for home sales?” These are some of the 8 things realtors want you to know before buying a home. “As an agent, I really want the buyer to feel educated during every step, so there are no items that pop up that they are not aware of,” Ringelheim says.

According to Diana Sutherlin, licensed broker associate at Compass in New York City, you should be on the same page with both your realtor/broker and your partner, so the terms are crystal clear if you find your dream home quickly. “For example, if you need to move by X date or stay within a certain school zone, share the timeline and facts with your broker or realtor.” If you only want to pay in cash, let your broker/realtor know; likewise, if you need to finance, she says you need to be pre-approved, and you should share the letter with your broker/realtor. “The more intel you share, the easier and more streamlined the process will be, especially if you need to move quickly.”

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