Philadelphia among 4 cities where buying is cheaper than renting: study
PHILADELPHIA (CBS) -- Philadelphia is among just four U.S. cities where buying a home is cheaper than renting, according to a new study.
The study, released by real estate company Redfin, looked at the 50 most popular metro areas and ranked them based on the estimated monthly premium of the median U.S. mortgage cost to rent cost.
In analyzing the data, 59% of properties in Philadelphia are cheaper to buy than rent, putting the City of Brotherly Love second behind Detroit in homeownership affordability. Cleveland and Houston also made the list.
Pittsburgh is just out of the threshold of homeownership affordability, with just 48% cheaper properties to buy than rent, putting it fifth on the list.
Newark, New Jersey, has 16% of properties and Montgomery County, Pennsylvania, was noted to only have 10% of properties that are cheaper to buy than rent.
Buying vs Renting in Philadelphia
According to Redfin
- Estimated median monthly mortgage cost: $1,869
- Estimated median monthly rent: $2,000
- Premium (%) of estimated monthly mortgage costs to rent: -6.6%
- Premium ($) of estimated monthly mortgage cost to rent: -$131
- Share of properties with estimated monthly mortgage cost lower than rent: 59.3%
Why is it cheaper to buy than rent in Philadelphia?
In Philadelphia, experts said the median estimated monthly mortgage payment is $1,869, compared to the median estimated monthly rent of $2,000, meaning the typical home is 7% (or $131) less expensive to buy than rent.
However, nationwide, the typical home costs 25% more to buy than rent. This is based on a 5% down payment and a 6.5% mortgage rate.
ALSO SEE: Thousands in Philly spending half or more of their paychecks on rent
Redfin said the homes in the top four cities are cheaper to buy than rent because the home values in those areas have stagnated relative to the country as a whole.
This could be in part to the growing number of houses available outpacing the population in the city.
From 2020 to 2021, the nation's housing stock grew by 1.6 million units. Philadelphia County is among the five counties with the largest numeric gain in housing units during this time, adding 24,701 units, according to the U.S. Census Bureau.
At the same time, data also shows a continued downward population trend in Philadelphia. While it is still the sixth most populous city in the county, the area's population decreased by 36,541, as of July 2022.
Closing the gap
To close that gap, mortgage rates would need to fall substantially in other parts of the country, Redfin said. If mortgage rates in the U.S. fell to 5%, Redfin said buying the typical home would then only cost an estimated 10% more than renting.
"Rates are really the issue — they need to be in that 4% to 3% range" to make buying a place less expensive than renting in most cities, Jason Aleem, the senior vice president of real estate operations at Redfin, told CBS News.
Although, Redfin did note that while renters don't build home equity, they do avoid the high costs that come with maintaining and selling a home, adding that some renters may also choose to invest their money into other lucrative assets instead of putting it toward a home.
Redfin said they expect mortgage rates to fall below 6% by the end of the year, citing the Federal Reserves's progress to fight inflation, adding that it is unlikely it will return to 3% levels anytime soon.