0% of Los Angeles homes cheaper to buy than rent: study
LOS ANGELES - Buying a home is more affordable than renting in four U.S. cities - and (not surprisingly) Los Angeles is not one of them!
A report by Redfin found in Southern California, specifically in Los Angeles and Anaheim, 0% of homes there were cheaper to buy than rent.
The report defined the "typical home" as one with an estimated monthly mortgage cost lower than its estimated monthly cost.
Riverside was the only Southern California metro that reported above the 0% mark.
A for rent sign is posted in front of an apartment building on February 1, 2017 in Los Angeles, California. (Photo by Justin Sullivan/Getty Images)
Here's a breakdown of the Southern California metros included and how they ranked:
Los Angeles
Estimated Median Monthly Mortgage Cost: $6,454
Estimated Median Monthly Rent: $3,612
Premium (%) of Estimated Monthly Mortgage Cost to Rent: 78.7%
Premium ($) of Estimated Monthly Mortgage Cost to Rent: $2,842
Share of Properties with Estimated Monthly Mortgage Cost Lower Than Rent: 0%
Anaheim
Estimated Median Monthly Mortgage Cost: $7,892
Estimated Median Monthly Rent: $4,122
Premium (%) of Estimated Monthly Mortgage Cost to Rent: 91.5%
Premium ($) of Estimated Monthly Mortgage Cost to Rent: $3,771
Share of Properties with Estimated Monthly Mortgage Cost Lower Than Rent: 0%
Riverside
Estimated Median Monthly Mortgage Cost: $4,320
Estimated Median Monthly Rent: $2,992
Premium (%) of Estimated Monthly Mortgage Cost to Rent: 44.4%
Premium ($) of Estimated Monthly Mortgage Cost to Rent: $1,329
Share of Properties with Estimated Monthly Mortgage Cost Lower Than Rent: 2.4%
To the north up in the Bay Area, however, the real estate situation gets worse.
There, it's twice as expensive to buy than rent and thus home to the largest homeownership premium, according to the data.
The four major U.S. metropolitan areas in the country where buying is more affordable than renting are Detroit, Philadelphia, Cleveland, and Houston.
Nationwide, the typical home costs 25% more to buy than rent.
A "For Sale" sign outside a house in Albany, California, US, on Tuesday, May 31, 2022. Photographer: David Paul Morris/Bloomberg via Getty Images
The median estimated monthly mortgage payment for homebuyers is $1,296, compared with a median estimated monthly rent of $1,697.
To get this data, Redfin analyzed U.S. single-family homes, condos/co-ops and townhouses in the 50 most populous U.S. metros. They estimated what a homebuyer’s monthly housing payment would be on those properties using the Redfin Estimate of the homes’ value in March and a 6.5% mortgage interest rate—the average rate in March. This analysis includes homes that were for sale and rent in March, as well as those that were off the market.
"Buying a home often makes more financial sense than renting if you can afford a down payment and monthly mortgage because you’re building equity. When you own your home, your home pays you; when you rent, you and your home pay your landlord," said Redfin Deputy Chief Economist Taylor Marr. "But buying isn’t a feasible option for everyone. Some people move around a lot, so renting might make more sense because they won’t be in their home long enough to build equity. Many others simply don’t have the money for a down payment—a situation that has become increasingly common due to rising mortgage rates and elevated home prices."
A "for sale" signs stand outside a home in Arcadia, California, U.S., on Sunday, July 21, 2013. Photographer: Jonathan Alcorn/Bloomberg via Getty Images
"I wouldn’t encourage people to squeeze their budgets in order to buy a home when prices are falling and we’re teetering on a recession," Marr said. "In the years leading up to the pandemic, it made sense for some homebuyers to break the rule that says not to spend more than 30% of your income on monthly housing costs, but these times are more risky, so it makes sense to be a little more conservative."
While renters don’t build home equity, they do avoid the high costs that come with maintaining and selling a home. Some renters may also choose to invest the money they’re not putting toward homeownership into other assets.
You can read the full study by tapping or clicking here.