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The year 2021 has been a record-breaking year for both home sales and home rentals, but with home prices and rents rising at a double-digit pace, is there anywhere still relatively cheaper to own than to rent? While the costs of owning a home (monthly mortgage payment, property tax, maintenance, insurance, etc.) are higher than renting, a comparison of the costs of owning a home to the cost of renting as of 2021 Q3 shows that relative to the national average, it is more expensive to own a single-family existing home in 101 out of 178 metro areas (56%). Many of these metro areas are located in the Western part of the United States (Pacific, Mountain, West North Central and West South Central geographic divisions).
In all metro areas, it costs more to own a home than to rent an apartment unit. Nationally, the sum of monthly mortgage, property taxes, and maintenance expense is 70% more than the average asking rent (ratio of 1.7).
The map below shows the ratio of the sum of monthly mortgage payment, estimated real property taxes,1 and maintenance expenses2 to the average asking rent as of 2021 Q3. The orange areas in the map (101 out of 178, or 56%) are areas where the ratio is greater than the US national average of 1.7, which means that in these areas, it is relatively more expensive to own a home than to rent compared to the national average.
The map starkly shows that most of the metro areas where it is relatively more expensive to own than to rent are located in the Western part of the United States or in these geographic divisions: Pacific, Mountain, West North Central and West South Central. The metro areas where it is relatively less expensive to own than to rent are mostly in the Middle Atlantic, South Atlantic, and East South-Central divisions. That said, it is relatively more expensive to own a home than to rent in the New England metros.
Areas where it is relatively cheaper to own than rent
Among metro areas with a population of at least 200,000, the top metros where it is relatively cheaper to own than rent compared to the national average are Erie, Pennsylvania; South Bend-Mishawaka, Indiana-Minnesota; Ocala, Florida; Florence, South Carolina; and Fayetteville, North Carolina. In these metro areas, the mortgage payment, estimated property tax, and maintenance/insurance is 20% to 30% higher than the asking rent (ratio of 1.2 to 1.3).
Large metro areas where it is still relatively cheaper to own a home than to rent include the Atlanta-Sandy Springs-Marietta, Georgia; Tampa-St. Petersburg-Clearwater, Florida; and New York-Newark-Jersey City metro areas. In these areas, the cost of owning is 40% to 50% more than the asking rent (ratio of 1.4 to 1.5).
Areas where it is relatively more expensive to own than rent
Not surprisingly, the metro areas where owning is a lot more expensive than renting compared to the national average are San Jose (ratio of 4.2), San Francisco (3.8), Urban Honolulu (3.3), Barnstable Town (3.0), San Diego-Carlsbad (2.7), Seattle-Tacoma-Bellevue (2.7), and Yakima (2.7). For example, in the San Jose metro area, the expected monthly cost associated with owing a home is $11,291 compared to $2,709 to rent an apartment unit.
Outlook for renting and owning in 2022
Given the greater flexibility to work from home, in addition to this “East-West divide” between renting and owning, there will likely be greater homebuying activity in the Eastern states relative to Western metro areas. For those living in the West region, renting will remain a cheaper option unless home construction significantly ramps up to increase housing supply and improve housing affordability. The wide divide between the cost of owning and renting means that there is a huge need for the development of owner-occupied housing in the West region states. However, in the short-term, until owner-occupied housing significantly increases, there will continue to be high demand for rental housing in the West region states.
1 Author’s estimate based on the 2020 American Community Survey median real estate tax and median property value data. This share is then multiplied to the NAR median existing-home sales price.
2 Assumption is that maintenance expenses are 2% of home sales price based on the 1% to 4% rule of thumb industry practitioners recommend (see https://www.thebalance.com/home-maintenance-budget-453820) and an additional 1% for other expenses like insurance.
