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While homeownership is getting further out of reach for many, rental affordability is improving across the United States. So how large is the gap between renting and buying right now?
At the start of 2024, average 30-year mortgage rates were high at around 6.6%, but many were hopeful that interest rates would decline after the Federal Reserve lowered its federal funds rate. Rather than improving, current mortgage rates are higher than they were a year ago. Fannie Mae predicts the year will finish with rates around 6.5%, not much lower than in early 2024, and not likely low enough to entice prospective buyers off the sidelines.
Meanwhile, rental supply is building and keeping costs stable. According to Rent.com, the national median rent fell by 0.7% from December 2023 to December 2024. This disparity in housing accessibility may drive some young buyers back into the rental market as they wait for borrowing cost relief.
For many young Americans, the choice between renting and buying is a purely economic one, making the analysis of current rental and homeownership trends crucial for determining the best financial decision. Renters considering a transition to homeownership should be especially careful in considering if the costs associated with owning will be feasible.
Zoocasa compared current rental and homeownership costs across 44 of the 50 largest U.S. metropolitan areas, as reported by Rent.com, to see where the transition from renting to buying may be more accessible, and where the jump may be more challenging.
Pittsburgh and Cleveland Are the Only Cities Where It’s More Expensive to Rent Than Buy
Even as Pittsburgh’s rental prices have dropped by 4.2% from last year, buying a home is still the cheaper option in the city. With a median single-family home price of $225,400, the average monthly mortgage payment totals $1,193, while the median monthly rent is $1,370. This $177 monthly difference equals over $2,000 a year, which is likely enough to cover homeowner insurance.
Cleveland renters will also find they are paying more in monthly rent than they would for a median-priced home. The median monthly rent of $1,280 is about $100 more than the average monthly mortgage payment of $1,175, giving homeowners $1,260 in annual savings.
In Detroit, homeowners will pay more in monthly mortgage payments than they would for rent, but the difference is minimal. Detroit's monthly rent comes out to $1,345, while the average monthly mortgage payment equals $1,433, a difference of $88 per month. Similarly in Buffalo, the gap between monthly rent and monthly mortgage payments is relatively small at just $100.
Midwest Cities Close the Gap Between Rent and Owning
Several cities in the Midwest offer less than a $300 difference between monthly rent and monthly mortgage payments, giving renters a more realistic chance at breaking into the housing market. These include St. Louis, Cincinnati, Louisville, and Chicago.
Among these, St. Louis has the smallest gap between renting and owning at just a $201 difference. St. Louis also boasts one of the lowest median home prices at $270,300, representing less than a third of the cost of a home in Los Angeles.
Columbus and Indianapolis are not quite as affordable as St. Louis, but both have below-average home prices and a gap of less than $350 between renting and buying, making each a good option for renters transitioning to owning.
With borrowing costs high and home prices rising, finding affordable housing requires flexibility and long-term thinking. If you’re ultimately looking to live in a high-cost city like New York or Los Angeles, you might be able to speed up the process by investing in real estate in lower-cost cities like those in the Midwest. After a few years, your investment property will have potentially built enough equity for you to move to a more expensive city. Alternatively, you may discover that you enjoy the culture and amenities of living in a mid-sized city. Either way, keeping your options open may provide the key to homeownership in 2025.
13 Cities Have Over a $1,000 Gap Between Renting and Owning
In many of the country’s largest cities, particularly those on the West Coast, transitioning from renting to owning will require significant financial planning. With a gap of over $2,000 between renting and buying, Seattle renters must save an additional $25,000 a year to cover mortgage costs. This will require years of saving, especially for solo buyers and median-income earners.
However, Seattle’s expenses pale in comparison to the $6,995 gap between San Jose’s rental and mortgage costs. San Jose has the country’s highest median home price at $1,920,000 and requires a monthly mortgage payment of $10,167. Renters also face steep costs with the monthly rent at $3,173, the highest in the country.
Cities with over $1,000 differences between monthly rental and mortgage costs create a huge barrier to first-time home buyers. In some cases, they’ll need to save more than their monthly rental costs every month to enter the housing market. In Denver, the median rent is $1,697, while the average monthly mortgage payment is $1,749 higher. This means that, on top of paying their rent every month, Denver renters will also need to set aside an equivalent amount to save for a mortgage. This puts a strain on a renter’s disposable income and may even be impossible to achieve in some cases.
The Gap Between Renting and Buying is Widening in Almost Every City
In early 2024, Detroit and Philadelphia residents could save money by owning a home as monthly mortgage payments were $104 and $58 less, respectively, than monthly rental payments. By 2025, the situation reversed; monthly mortgage payments now exceed rents by $88 in Detroit and $128 in Philadelphia.
The three cities that experienced the largest widening in the rent-mortgage gap between January 2024 and January 2025 are San Jose, San Francisco, and New York. New York used to have a fairly moderate gap of $460, but with rent decreasing and home prices increasing, the gap widened to $938.
Among all 44 cities analyzed, only two showed a narrowing in the rent-mortgage gap: Memphis and Providence. For the remaining 42 cities, the gap increased by an average of $197. Unless income growth can help close the gap between housing costs, its likely that young people will remain as renters for longer. At the same time, homeownership will be reserved for those with access to increased funds, either through generational wealth, promotions, or government assistance programs.
Do you have questions about entering one of these real estate markets? Give us a call! Our experienced real estate agents will help you navigate the market to find the right home for you.
The post As the Rent vs. Buy Gap Intensifies, American Renters Face Greater Obstacles to Homeownership appeared first on Zoocasa Blog.
