In Bay Area, 0% of homes were cheaper to buy than rent, study says
A for sale sign is posted in front of a home for sale on February 20, 2023 in San Francisco, California. (Justin Sullivan/Getty Images)
SAN FRANCISCO - It's more than twice as expensive to buy a home than to rent in the Bay Area, which had the largest homeownership premium than any other major U.S. metropolitan area, and where 0% of homes were cheaper to buy than rent, according to a new study.
And topping the list was San Jose, where a typical home was 165% more expensive to purchase than to rent. The study calculated the median estimated monthly mortgage payment in San Jose to be $11,049. That’s compared with a median estimated monthly rent of $4,176.
San Francisco followed, with it costing 139% more to buy than rent (the analysis used the term ownership premium). San Francisco had a median estimated monthly mortgage payment of $10,892, compared with a median estimated monthly rent of $4,552.
Oakland rounded out the top three with a 99% ownership premium and monthly mortgage of $7,376 compared with median rent at $3,700.
SEE ALSO: Santa Cruz becomes most expensive California county for rent
Nationally, those figures stood at 25% ownership premium, with median mortgages at $3,385 and rents at $2,715.
The study also found there were only four major U.S. metropolitan areas where it would be cheaper to buy than rent the typical home: Detroit, (24% ownership discount); Philadelphia (7% ownership discount), followed by Cleveland (4% discount) and Houston (1% discount).
The analysis by real estate company Redfin, looked at single-family homes, condominiums/co-ops, and townhouses in the 50 most populous U.S. metro areas and estimated a homeowner’s monthly mortgage along with a 6.5% mortgage interest rate, which was the average rate in March. The study compared that with monthly rent estimates on those same properties.
"Buying a home often makes more financial sense than renting if you can afford a down payment and monthly mortgage because you’re building equity. When you own your home, your home pays you; when you rent, you and your home pay your landlord," said Redfin Deputy Chief Economist Taylor Marr, who also acknowledged that buying was not a feasible option for a lot of people.
"Many others simply don’t have the money for a down payment—a situation that has become increasingly common due to rising mortgage rates and elevated home prices."
In addition to rising mortgage rates over the last year, homeownership has become further out of reach for many people due to a surge in prices during the pandemic, according to Redfin experts.
There was also an exodus from many expensive areas. And the effects rolled over to metro locations that were previously fairly affordable and cheaper to buy than rent, like Sacramento and Las Vegas, where the analysis found now less than 1% of homes were cheaper to buy than rent.
"They exploded in popularity—and price—when scores of remote workers moved in during the pandemic," researchers noted.
Ownership premium has hit the highest level since the 2006 housing bubble, making it prohibitively expensive for many buyers, researchers said.
But they pointed to an upside for potential homebuyers: "They’re now seeing home prices come down faster than nearly anywhere else in the U.S."
The analysis found that median sale prices in San Jose and Oakland fell some 10% year over year in March. That’s three times more than the nationwide decline.
"Rents have also been falling in some pricey coastal markets, but at a slower pace than home prices," researchers said.
Experts noted that the ownership premium was the highest in places like the Bay Area, because historically, that’s where properties had the greatest wealth building potential.
"Nowhere is the housing affordability crisis more severe than in pricey coastal markets like the Bay Area and Seattle," researchers noted, "where a jump in mortgage rates can mean a homebuyer’s monthly payment goes up by thousands of dollars."
FILE - The San Francisco skyline is seen during sunset in this view from Treasure Island in San Francisco, Calif., on Jan. 12, 2022. (Jane Tyska/Digital First Media/East Bay Times via Getty Images)