Every six months, Trulia releases a report that reveals if the housing market is more favorable to renting or buying. The most recent, Trulia’s Winter 2014 Rent vs. Buy Report, indicates that buying a home is 38 percent cheaper than renting in all of the nation’s largest 100 metro areas. Buying affordability ranges from 66 percent cheaper than renting in Detroit to just 5 percent in Honolulu.

J.D. Crowe, President of Southeast Mortgage
J.D. Crowe, President of Southeast Mortgage

To calculate if renting or buying is more worthwhile, Trulia first calculates the average rent and sale price for identical listed properties across a metro area. Then, Trulia calculates costs of homeownership (such as homeowner’s insurance, property taxes and maintenance) and the costs of renting (e.g., renter’s insurance and security deposits), both one-time fees and monthly costs. Trulia uses a flat 4.5 percent  mortgage rate. The calculation also assumes that the consumer is in the 25 percent federal tax bracket and will reside  in the home for seven years.

However, the gap is narrowing as buying a home was 44 percent cheaper one year ago. Today, low mortgage rates and rising rent prices are working to offset rising home prices to continue having buying be more affordable. MSNBC reported that rent prices are rising almost 4 percent annually after researching the top 25 rental markets in the U.S.

“This is a huge increase when compared with inflation,” said MSNBC in “Massive rent increases to continue.” “And, generally speaking, incomes are not keeping pace with rent increases, putting renters in an even tighter position.”

Trulia’s report also calculated mortgage rate “tipping points” in the 100 metro areas, referring to the mortgage rate where renting would become cheaper than buying, given current home prices and rent.

Based on some tipping points that reach as high as 33.8 percent, many Midwest cities continue to  be a place where buying a home is a no-brainer. However, many California areas topped the list “where buying a home is a tougher call” as mortgage rates only need to reach 5 percent for renting to become the more attractive option. On a national scale, mortgage rates would have to rise to a staggering 10.6 percent, a number that hasn’t been seen since 1989, to make renting cheaper than buying.

“Buying remains cheaper than renting across the country even after 2013’s big price rebound,” said Jed Kolko, Trulia’s chief economist. “Mortgage rates are still near historic lows, despite rising a point in the past year, and would be the envy of time travelers from the 1980s, 1990s, or 2000s.”

Trulia’s interactive “Rent vs. Buy: Which is Cheaper for You?” map displays Atlanta as one of the most lucrative buying areas compared to the other metro areas. The map also allows users to adjust for their own mortgage rates, income tax bracket and number of years one stays in the home to see if buying is the best option for their lifestyle.

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