Buying a home is cheaper than renting in 4 U.S. cities

Despite the fact that rent remains painfully high in most major U.S. cities, buying a home is even more expensive. In fact, according to a new study by real estate company Redfin, it's now cheaper to buy a home than to rent one in only four major metro areas. Those cities are Detroit, Philadelphia, Cleveland and Houston, as Jason Alim, senior vice president of real estate operations at Redfin, told CBS News.

In all other major cities, from San Jose, California, to Pittsburgh, Pennsylvania, it's financially advantageous to remain a renter, the company's analysis found. Detroit, Philadelphia, Cleveland and Houston didn't experience the same home price increases during the pandemic as other major U.S. cities, which is why they are more affordable for buyers now, Alim said. Home prices across the country rose by double-digit percentages during the pandemic, and now prospective buyers face another hit to their wallets because of rising mortgage rates.

"The problem is the rates - they need to be in the 4% to 3% range" for buying a place to be cheaper than renting in most cities, Alim said.

The cost gap between buying a home and renting an apartment is now the largest in 15 years, according to a recent analysis by the National Multifamily Housing Council. On average, homeowners now pay an additional $1,176 a month compared to a typical rental at a professionally managed apartment complex, the organization found.

San Jose, California - the center of Silicon Valley - is the city where buying versus renting is the most expensive, according to Redfin, with a typical home in the region costing 165% more than renting. The average monthly mortgage payment for buyers is over $11,000 compared to an average monthly rent of about $4,200. San Francisco ranks second with a 139% premium for ownership, followed by Oakland, California, with a 99% premium. Even Pittsburgh, often considered one of the more affordable cities for housing, is now more expensive for buyers, according to Redfin, with a typical home now requiring $1,648 in mortgage payments, compared to $1,619 for rent.

Alim had some advice for potential buyers: "Marry the house, but meet the interest rate." In other words, find a home that works for you, realizing that interest rates change over time in response to the Federal Reserve Bank's federal rate and other market conditions. The Federal Reserve has been raising rates for more than a year in an attempt to curb inflation, which has caused mortgage rates to rise. "There will be opportunities to refinance" when rates come down, Alim noted. However, Redfin predicts mortgage rates will fall to around 6% by the end of the year, but are "unlikely" to return to 3% in the near future.