Numerous Americans have made the decision to rent a place to live while they save money for purchasing a home. Owning a home is still regarded as a significant aspect of the “American dream,” which has long been seen as a symbol of achievement.
A recent study by Home Bay suggests that due to the average U.S. home price rising 70% more compared to rent prices since 2016, renting may become a long-term situation for numerous Americans.
Based on the difference in monthly rent and mortgage payments, renting is more cost-effective than buying a home in 90% of the most populous cities in the U.S. On average, renters can save $174 per month, which totals to $2,088 per year.
The study examined the 50 most-populous metropolitan areas in the U.S. by analyzing their price-to-rent ratios. To determine these ratios, the study divided the median home price by the median annual rent. The purpose was to identify which cities offer the most affordability for transitioning from renting to purchasing a home. A ratio of 15 or lower signifies that buying is the better option, whereas a ratio of 21 or higher suggests that renting is preferable. The research discovered that the national average ratio is 18.
San Jose, California holds the top spot for the highest price-to-rent ratio among the cities evaluated (ranked at 38), whereas Pittsburgh ranks as the city with the lowest ratio (12).
Apart from having the highest price-to-rent ratio, San Jose, CA also has the highest rent prices at $3,181 and the highest home prices at $1,431,676. On the other hand, Milwaukee has the lowest rent prices at $1,214, and Pittsburgh has the lowest home prices at $188,418.
The savings experienced by renters in certain cities can be significant. For instance, in Los Angeles, renters can save nearly $3,000 per month by opting for rent instead of a mortgage. In San Francisco, residents can save an impressive $4,089 each month by choosing to rent.
The study revealed that, nationwide, it would take approximately 166.3 months (almost 14 years) of rent to save up for the typical home purchase price. However, in San Jose, CA, this figure jumps to 450 months (nearly 38 years).