Buying vs renting a home in 2020. Insights from Rick Sharga answer whether it is better to rent or buy a home in 50 U.S. metropolitan areas.

This article has been updated to clarify that median home prices and median home payments listed are for homes in the 25th quartile.

More than 80 percent of renters believe renting is more affordable than owning a home in 2020, according to the latest survey by FreddieMac. It’s an all-time high for the survey and a jump up 17 percentage points from February 2018. But is it true?

The answer to the age-old question “Is it better to rent or buy a home?” isn’t easy because so much depends on your own personal finances, your career trajectory, and a complicated formula that takes into account variables like total monthly costs, local median rent and sales prices, taxes and insurance. 

Rick Sharga, CEO of CJ Patrick Company, recently looked at the costs to rent versus buy a home in the 50 largest metropolitan areas in the U.S., based on information from First American DataTree. For his research, he specifically analyzed the least expensive homes in a market – the 25th “quartile” – which are more representative of what first-time buyers look for.

Q&A with Rick Sharga, CEO of CJ Patrick Company, on Buying vs Renting in 50 U.S. Metro Areas

This interview was edited for clarity and length.

Q: What was most interesting about the regional groupings?

Rick Sharga: It wasn’t a huge surprise that cities in the Midwest and Southeast were generally more affordable for homebuyers, since home prices have accelerated rapidly up and down the Pacific Coast for the past few years. 

There were a few surprises, though, like Memphis being twice as expensive for renters than first-time homeowners. And California cities – San Francisco, San Jose, Los Angeles and San Diego are becoming difficult for both renters and owners. Those cities have some of the lowest homeownership rates in the country, and some of the lowest apartment vacancy rates. That situation is bound to drive costs up for both owners and renters, and make affordability even more challenging.

Top 10 Buyer Markets

MarketMedian RentMedian Home Price*Monthly Home Payment*Rent-to-Buy Ratio
     
Memphis$914$72,365$4621.98
Birmingham$857$71,387$4371.96
Pittsburgh$799$76,310$5361.49
Jacksonville$1,071$130,833$8451.27
Oklahome City$852$101,626$6681.27
St. Louis$881$103,664$7041.25
Tampa$1,089$133,278$8681.25
Atlanta$1,167$146,201$9481.23
Miami$1,314$161,458$1,0831.21
New Orleans$947$124,364$7871.2

Source: First American DataTree
*Median home prices and payments of homes in the 25th quartile.

Q: Why was the homeownership rate in Nashville eight points higher than the national average, and the highest rate of any of the markets included in the study?

Sharga: For the past several years, Nashville had the distinction of being one of the most-affordable and fastest-growing housing markets in the country. My guess is that as the Nashville population increases, there will be more multifamily property development, and the homeownership rate will drop a little bit.

Q: Were there any metros that made the top 10 renter or buyer market lists that surprised you?

Sharga: It was interesting to see Providence, RI on the top 10 list of renters markets, simply because the other nine metro areas were all Western States – and almost all of them on the Pacific Coast. I was also a little surprised to see Atlanta and Miami on the top 10 list of owners markets, simply because both cities have seen prices rising steadily since the end of the Great Recession. They’re exceptions in that most of the country’s largest metro areas skew towards being better markets to rent in.

Top 10 Renter Markets

MarketMedian RentMedian Home Price*Monthly Home Payment*Rent-to-Buy Ratio
     
San Jose$2,304$775,350$4,8760.47
Los Angeles$1,496$474,225$2,9970.5
San Francisco$1,900$584,388$3,6900.52
San Diego$1,602$433,338$2,7540.58
Salt Lake City$1,035$271,124$1,6810.62
Portland$1,245$305,278$1,9940.62
Providence$947$208,532$1,4320.66
Seattle$1,503$335,928$2,1660.69
Sacramento$1,337$304,375$1,9480.69
Denver$1,373$315,148$1,9600.71

Source: First American DataTree
*Median home prices and payments of homes in the 25th quartile

Q: Was there anything notable about the 30 metros that didn’t make it onto either list? Were there any similarities between them?

Sharga: It was interesting that some of the most expensive cities in the country – New York City, Washington DC and Chicago – along with some of the fastest-growing cities – Austin and Denver – weren’t at the top of the renter’s list. That suggests that rental prices in those markets have kept pace with home prices, which reduces the “advantage” consumers might have paying rent vs. paying housing costs. It wouldn’t be a surprise to see any of those cities break into the top 10 next time.

Q: So, is it better to rent because it’s slightly cheaper than owning?

Sharga: Just because it’s slightly cheaper to rent than to make monthly home payments doesn’t necessarily mean that renting is the best decision for families – especially in the long run. Homeownership has been an important part of the way that many families have established financial security, and is a great source of intergenerational wealth. All things being equal, many families are better off buying than renting, as long as they’re ready for the financial commitment. 

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