In only four major cities in the U.S. is it cheaper to buy a home than to rent: no comments.

Buying real estate in Detroit, Philadelphia, Cleveland, and Houston is cheaper than renting. The highest premium for property is observed in San Francisco, where the cost of buying is twice that of renting. Overall in the country, homeownership costs about 25% more per month than renting.

A decrease in mortgage interest rates will lead to a reduction in the property premium. If the rate drops to 5%, buying a typical home will cost about 10% more than renting. In only four major cities in the U.S., it is possible to buy a home for less than renting it—meaning the mortgage payment is lower than the rent. In Detroit, buying a typical home costs 24% less than renting—the largest discount among the 50 largest metropolitan areas. The average monthly mortgage payment for buyers is $1,296, compared to median monthly rent payments of $1,697. Following Detroit are Philadelphia (7% discount), Cleveland (4% discount), and Houston (1% discount). Overall in the country, buying a typical home costs 25% more than renting. This is according to an analysis by Redfin of single-family homes, apartments, and townhouses in the 50 largest metropolitan areas in the U.S. We calculated what the monthly mortgage payments would be for buyers of these properties using Redfin's home value estimates from March and a mortgage interest rate of 6.5%—the average rate in March. We also estimated what the monthly rent would be for the same homes using Redfin's rental estimates. In estimating monthly housing payments, we assumed a 5% down payment, homeowners insurance equal to 0.5% of the purchase price, and property tax at 1.25% annually, unless there were available tax documents. The analysis includes homes that were listed for sale and rent in March, as well as those that were taken off the market. Historical data from Redfin is currently unavailable. "Buying a home often makes more economic sense than renting if you can afford the down payment and monthly mortgage payment because you are building equity. When you own your home, your home pays you, and when you rent, you and your home pay the landlord," said Redfin's Deputy Chief Economist Taylor Marr. "But buying is not an affordable option for everyone. Some people move frequently, so renting may make more sense because they won't stay in their home long enough to build equity. Many others simply do not have the money for a down payment—a situation that has become increasingly common due to rising mortgage rates and elevated home prices."

In Detroit, Philadelphia, Cleveland, and Houston, it is cheaper to buy a home than to rent, because property values in these areas have stagnated compared to the rest of the country. When homebuyers cannot build much equity, they have less incentive to pay a premium for ownership, Marr explained. However, this is a double-edged sword; housing prices in Cleveland and Detroit are stagnant compared to boom cities like Phoenix and Miami, so they do not experience huge spikes, but this also means they do not face the significant downturns currently happening in much of the U.S. When more people can afford to buy homes—even if they are not building much equity—there is also more wealth equality, Marr added. In Detroit, 80% of properties are cheaper than renting—the highest share in the U.S. Next is Philadelphia (59%), followed by Cleveland (57%) and Houston (52%), compared to the national share of 19%. For buying to become cheaper than renting in other parts of the country, mortgage rates would need to drop significantly. If the rate on a 30-year fixed mortgage falls to 5%, the average monthly mortgage payment for buyers would be $2,993, which is 10% higher than the median monthly rent payment of $2,716.

Although renters do not build equity in a home, they avoid the high costs associated with maintenance and selling. Some renters may also choose to invest the money they do not spend on purchasing a home into other profitable assets. In the Bay Area, buying a home costs more than twice as much as renting. In San Jose, California, the typical home is priced 165% higher than renting, the largest percentage premium among the 50 largest metropolitan areas. The average monthly mortgage payment for buyers is $11,049, compared to median monthly rent payments of $4,176. Following San Jose are San Francisco (139% premium), Oakland, California (99% premium), Anaheim, California (91% premium), and Seattle (88% premium). In these metros, there are no homes available for purchase that are cheaper than renting.

Buying a home is more expensive than renting in most parts of the country because it comes with advantages: the ability to build equity, fixed monthly costs, and tax benefits, to name a few. The premium is highest on the West Coast, as that is where homebuyers expect the greatest potential for wealth creation based on historical data, Marr explained. The rise in mortgage interest rates over the past year has increased the property premium to its highest level since the housing bubble of 2006 and widened the gap between buyers and renters, making homeownership unaffordable for many people. The most serious housing affordability crisis is observed in expensive coastal markets, such as the Bay Area and Seattle, where rising mortgage rates can lead to an increase in a buyer's monthly payment by thousands of dollars. The silver lining is that because these markets have become so unaffordable—partly due to rising mortgage rates and partly due to a surge in home prices during the pandemic—they are now seeing a faster decline in home prices than almost anywhere else in the U.S. Average sale prices in San Jose and Oakland have dropped by about 10% compared to last March, which is three times the national decline. Rent is also decreasing in some expensive coastal markets, but at a slower pace than home prices.

In pandemic boom cities, there are almost no homes that can be bought for less than renting. It's probably not surprising to you that in the flood zone, there are virtually no homes that can be purchased for less than renting. But this also applies to Sacramento, Las Vegas, Phoenix, and Austin - metros that were recently quite affordable. They became well-known and gained market value when a multitude of remote workers moved there during the pandemic. In Sacramento and Las Vegas, less than 1% of homes can be bought for less than renting. In Phoenix, the share is 1%, and in Austin, it's 5%. All four metros made the list of the most popular migration destinations according to Redfin during the pandemic. "Housing affordability is an issue in Las Vegas. During the boom...