In a recent housing analysis conducted by real estate brokerage Redfin, it was revealed that renting is more affordable than buying in most parts of the US. However, there are a fortunate few who enjoy a different reality in four select cities. Let’s delve into the findings and explore the factors that contribute to this divergence in housing affordability.
The analysis of the 50 most popular metros found that, apart from Detroit, Philadelphia, Cleveland, and Houston, renting remains the more affordable option compared to buying. This news comes as a blow to potential homebuyers across major cities such as San Jose, Pittsburgh, and many others.
According to Daryl Fairweather, chief economist at Redfin, Detroit, Philadelphia, Cleveland, and Houston have fared better in terms of affordability due to their unique circumstances. These cities experienced less fluctuation in home prices during the pandemic, and the subsequent rise in mortgage rates had a lesser impact on their housing markets. Moreover, these cities boast more favorable conditions for new construction, contributing to increased affordability.
Redfin’s calculations demonstrate that Detroit is the most affordable city to purchase a home. In March, the median monthly mortgage payment in Detroit was estimated at $1,296, compared to a monthly rent of $1,697, resulting in a 24% discount for homebuyers. Philadelphia followed with a 7% ownership discount, then Cleveland with a 4% discount, and Houston with a 1% discount. Nationally, the typical home costs 25% more to buy than rent, as per Redfin’s analysis.
Redfin Deputy Chief Economist Taylor Marr attributes the divide in affordability to the different trajectories of housing prices. While booming markets witnessed steep price increases due to a surge in demand during the pandemic, cities like Cleveland and Detroit experienced more stagnant price growth. As a result, these cities avoided the housing busts that are now affecting many other areas.
While homeowners in cities like Detroit can build less equity due to slower price growth, they also have less incentive to pay a premium for ownership. This duality raises interesting dynamics and factors to consider when weighing the pros and cons of renting versus buying.
In contrast to the affordability in Detroit and other select cities, larger cities across the country have seen a surge in home prices, making properties increasingly unaffordable. San Jose tops the list with a whopping 165% premium for buying over renting, followed by San Francisco, Oakland, Anaheim, and Seattle.
According to Daryl Fairweather, the lack of inventory is a significant underlying issue affecting housing affordability nationwide. The limited supply of unsold single-family homes has driven up prices and kept affordability out of reach for many potential buyers. Although mortgage rates have played a role in exacerbating affordability challenges, increasing the housing supply remains the primary long-term solution.
The housing affordability landscape in the US is complex and varies greatly from city to city. While renting prevails as the more affordable option in most places, a handful of cities like Detroit offer a glimmer of hope for aspiring homeowners. Understanding the factors influencing affordability, such as construction conditions and market fluctuations, can help individuals make informed decisions. Ultimately, tackling the inventory shortage will be key to improving long-term affordability across the country.