The probability that
The typical renting-versus-buying calculation fails to include the building of equity, which is the main benefit of owning a home, Odeta Kushi, deputy chief economist at First American, said in a blog posting.
"After accounting for the total monthly homeownership cost and comparing it with the median rent by market, renting was a better financial choice in 48 out of the top 50 markets in the second quarter," Kushi wrote. "However, once the accumulation of equity from house price appreciation is included, it was cheaper to own in 29 of the top 50 markets, including the two of most expensive rental markets, San Jose, California, and San Diego."
But San Jose is also the nation's most expensive market to purchase in, as the first with
A $1.1 million home in San Jose is in the 25th percentile of local house prices, First American Data & Analytics found. If a buyer puts just 5% down with a mortgage rate of 7%, their monthly principal and interest would be $7,000, plus an estimated $2,500 in taxes, repairs, private mortgage insurance, and homeowner's insurance costs, Kushi said. That makes the monthly cost of ownership to approximately $9,500.
However, prices in the San Jose market increased nearly 8% year over year in the second quarter. That equates to an equity benefit to the homeowners of approximately $7,300 each month, making a net of $2,151 in cost to own.
The median monthly cost to rent in San Jose is $2,732, Kushi said. The difference between those two numbers is $581 per month
Austin, Texas was the only market in the analysis in which annual home prices went down and a similarly situated property in the 25th percentile would be worth $355,600. The buyer would lose $350 per month in equity value because of those falling values. As a result, the median cost to buy of $3,618 was much higher than the $1,530 median cost to rent.
San Francisco has the second highest monthly median cost to rent, $2,335, but it also has the highest cost to own, $3,821.
Denver had the third biggest difference in favor of renting at $1,470 per month.
The cities with the largest difference in favor of homeownership over renting are Providence, Rhode Island at $1,554 per month; Hartford, Connecticut at $1,240 and Cincinnati at $1,039.
"For those trying to buy a home, price appreciation can be intimidating and makes the purchase more expensive," Kushi said. "However, once the home is purchased, appreciation helps build equity in the home, and becomes a benefit, rather than a cost."
Kushi had a few words of advice for Gen Z. Past studies found that
"Despite the rise in house prices, this analysis shows that the wealth-building effect of home equity should not be overlooked in the rent-versus-own decision," Kushi said. "As we navigate an uncertain housing market, one thing remains clear: the long-term financial benefits of owning a home can make it a worthwhile investment."
Separately, the company's July Home Price Index recorded slowing growth for the seventh consecutive month. Prices were up 0.3% from June and 5.5% on a year-over-year basis.
"In markets that offer relative affordability, homes remain more accessible compared to other major markets, making them attractive to buyers who are priced out of higher-cost regions, despite rising prices, said Mark Fleming, First American chief economist in a press release. "In contrast, house prices in other markets are decelerating notably, with prices declining in cities like Austin, and Tampa, Florida."
The HPI report noted prices in Austin were 1% lower compared with July 2023, while in Oakland, California, they were down 0.9% and for Tampa, it was by 0.7%.
On the other hand, the largest equity gainer among the cities First American tracked was Anaheim, California, up 9.9%.
