It’s no secret that high interest rates and a low supply of homes for sale have pushed prices up, grounding the housing market to a near halt. Conversely, the rental market has thawed considerably after scorching-hot rent rises in 2021 and 2022.
Consider these data points. According to the National Association of Realtors, months of supply for existing homes sits at just 3.0, down from 4.6 at the beginning of the pandemic. The S&P CoreLogic Case-Shiller Home Price Indicies hit an all-time in December. And the average 30-year mortgage interest rate has been hovering around 7%.
However, according to Zumper’s year-over-year data, rent growth has stalled. Two-bedroom rent growth has fallen to just slightly above 0%, and one-bedroom rent growth has turned negative.
With the two markets diverging, this leaves potential buyers with a simple question: Where are mortgage payments less expensive than renting?
BiggerPockets crunched the data to provide the answer for cost-conscious dwellers. Using Zillow’s metro area January data for both home prices and rent, we assumed a 7% interest rate to calculate a monthly mortgage payment to compare to rent in the 50 largest metro areas in the United States.
But, the mortgage payment is largely dependent on the down payment. According to the National Association of Realtors, the average down payment for first-time buyers is 6%, while it’s 17% for repeat buyers. This makes intuitive sense, as repeat buyers have likely built up equity in their existing homes, particularly those who bought in the lower interest-rate environment.
The two maps show where it’s more expensive to buy (blue dots) and more expensive to rent (red dots) for both first-time buyers and repeat buyers. The size of the dot represents how much more expensive it is for the given scenario in that metro area.
Use these as good indicators of what it takes to enter a market and how easy it is to cash flow when you’re there. Note that in markets where it’s cheaper to buy than rent, you’re more likely to cash flow.
Mapping the Markets
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.