Mortgage payments fall lower than rent in 22 of the 50 largest US metros

Rhea-AI Summary

According to a new Zillow Home Loans analysis, monthly mortgage payments are less expensive than rent in 22 of the 50 largest U.S. metros. Recent dips in mortgage rates have significantly reduced monthly payments, making homeownership more attainable in certain areas. New Orleans, Chicago, and Pittsburgh offer the greatest savings when comparing rent to mortgage payments.

Nationally, the typical rent payment is $2,063 per month, while the typical mortgage payment is $1,827, resulting in a $236 monthly savings for homeowners. However, additional costs such as taxes, insurance, and maintenance should be considered for both renting and homeownership.

Zillow Home Loans has introduced a new tool called BuyAbility, which helps prospective buyers determine their home affordability and likelihood of mortgage pre-approval. With inventory up 22% compared to last year, buyers are gaining bargaining power in the current market.

Positive

• Mortgage payments are lower than rent in 22 of the 50 largest U.S. metros
• Potential monthly savings of $236 nationally by owning rather than renting
• New Orleans, Chicago, and Pittsburgh offer the greatest savings for homeowners
• Home inventory is up 22% compared to last year, giving buyers more bargaining power
• Introduction of BuyAbility tool to help buyers determine home affordability

Negative

• Homeowners must consider additional costs such as taxes, insurance, and maintenance
• A 20% down payment is required for the mortgage payment calculations, which may be a barrier for some buyers
• Rent prices are still climbing, with a 3.4% increase compared to last year

Zillow Home Loans' new BuyAbility tool is a quick way to determine if homeownership is within reach, and if it's possible to secure a mortgage that costs less than rent

SEATTLE, Sept. 16, 2024 /PRNewswire/ -- The monthly cost of homeownership may be more attainable than people think. But, it depends on where they live. According to a new Zillow Home Loans analysis¹, a monthly mortgage payment is actually less expensive than rent in 22 of the 50 largest U.S. metros. Recent dips in mortgage rates, which have fallen to the lowest level since early 2023, have significantly reduced monthly payments. 

New Orleans, Chicago and Pittsburgh offer the greatest savings when comparing the cost of rent to a mortgage payment, before taxes and insurance, and assuming a buyer can put 20% down. For those who can put together a down payment, buying a home in these cities may be the right move. 

In Chicago, the typical rent payment is $2,074 per month, but a monthly mortgage payment² is $1,640 — a savings of $434 a month by owning rather than renting. In New Orleans, homeowners can also save nearly $450 a month paying a mortgage rather than renting, and in Pittsburgh, the savings are about $320 a month. These savings are even more surprising when considering that homes for sale tend to be larger than the typical rental. 

This trend also holds true across the U.S. The typical rent payment nationally is $2,063 a month, but the typical mortgage payment is $1,827 — a savings of $236 a month by owning rather than renting. 

"This analysis shows homeownership may be more within reach than most renters think," said Zillow Home Loans Senior Economist Orphe Divounguy. "Coming up with the down payment is still a huge barrier, but for those who can make it work, homeownership may come with lower monthly costs and the ability to build long-term wealth in the form of home equity — something you lose out on as a renter. With mortgage rates dropping, it's a great time to see how your affordability has changed and if it makes more sense to buy than rent."  

Beyond monthly rent or mortgage payments, there are additional costs for both renting and homeownership that must be considered. Homeowners pay taxes, insurance, and utilities on a monthly basis, and should be prepared for ongoing maintenance costs. Renters also typically need insurance, and will often pay extra for parking, pets, and utilities. 

There are pros and cons to both buying and renting, but generally, the longer you plan to stay in your house, the more financial sense it makes to buy. Mortgage payments can decrease over time by paying off private mortgage insurance or refinancing your loan at a lower rate, whereas rent payments have the potential to increase at each lease renewal. Beyond that, mortgage payments build homeowners' equity in their house — increasing their financial stake in their home as time passes. 

Rent growth has come down from pandemic-era highs and returned to long-run norms, but prices are still climbing. The typical rent is 3.4% more expensive than a year ago and nearly 34% more expensive than before the pandemic. The for-sale market, on the other hand, is offering opportunities for buyers heading into the fall, with more than 1 in 4 sellers cutting prices. With inventory up 22% compared to a year ago, buyers are gaining bargaining power. 

One easy way for buyers to see if their potential mortgage payment is cheaper than their rent is to use BuyAbility, a new tool from Zillow Home Loans. BuyAbility quickly gives prospective home buyers an idea of how much they can afford and their likelihood of getting pre-approved for a mortgage. Buyers can check in with BuyAbility regularly on the Home Loans tab on Zillow's app to see how their estimate changes with current mortgage rates or a change to their credit score. 

U.S. Metros Where Mortgage Payments are Lower Than Rent

Metro Area	Typical Rent Payment	Typical Mortgage Payment	Monthly Savings
New Orleans	$1,652	$1,206	$446
Chicago	$2,074	$1,640	$434
Pittsburgh	$1,413	$1,092	$321
Miami	$2,787	$2,473	$314
Memphis	$1,499	$1,209	$290
Cleveland	$1,436	$1,171	$265
Detroit	$1,499	$1,286	$213
Tampa	$2,106	$1,914	$191
Oklahoma City	$1,373	$1,185	$188
Houston	$1,735	$1,553	$182
Birmingham	$1,418	$1,265	$153
Indianapolis	$1,569	$1,417	$152
St. Louis	$1,413	$1,273	$139
Louisville	$1,395	$1,305	$89
Cincinnati	$1,527	$1,446	$81
Orlando	$2,089	$2,008	$81
New York	$3,471	$3,399	$72
Hartford	$1,916	$1,846	$70
San Antonio	$1,505	$1,439	$66
Philadelphia	$1,870	$1,846	$24
Virginia Beach	$1,787	$1,777	$10
Buffalo	$1,361	$1,354	$8

1 Analysis used Zillow data to compare the cost of a monthly mortgage payment to the typical rent payment among the 50 largest U.S. metro areas. Analysis assumed a 20% down payment, a 6.5% interest rate and a 30-year fixed mortgage. Rental and mortgage figures don't include the cost of insurance or property taxes.

2 Assuming a 20% down payment, a 6.5% interest rate and a 30-year fixed mortgage.

 

About Zillow Group: 

Zillow Group, Inc. (Nasdaq: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing and renting experiences. 

Zillow Group's affiliates, subsidiaries and brands include Zillow®, Zillow Premier Agent®, Zillow Home Loans℠, Trulia®, Out East®, StreetEasy®, HotPads®, ShowingTime+℠, Spruce® and Follow Up Boss®. 

All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2023 MFTB Holdco, Inc., a Zillow affiliate.

Other costs on both sides. Taxes, insurance, maintenance, utilities. For renters – may be charged extra for parking, pets, potentially utilities. The longer you plan to stay in your house, the more sense it makes to buy. Mortgage payments are relatively fixed, whereas rent payments have the potential to increase at each lease renewal. 

 

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SOURCE Zillow Home Loans

FAQ

In which U.S. cities are mortgage payments lower than rent according to Zillow (Z)?

According to Zillow's analysis, mortgage payments are lower than rent in 22 of the 50 largest U.S. metros, with New Orleans, Chicago, and Pittsburgh offering the greatest savings for homeowners compared to renters.

How much can homeowners save monthly compared to renters nationally, based on Zillow's (Z) data?

Based on Zillow's data, homeowners can save an average of $236 per month nationally by paying a mortgage rather than renting, with the typical rent payment being $2,063 and the typical mortgage payment being $1,827.

What is the BuyAbility tool introduced by Zillow Home Loans (Z) in September 2024?

BuyAbility is a new tool from Zillow Home Loans that quickly helps prospective home buyers determine how much they can afford and their likelihood of getting pre-approved for a mortgage. It allows users to check their estimates regularly based on current mortgage rates and credit scores.

How has the home inventory changed compared to last year, according to Zillow's (Z) September 2024 report?

According to Zillow's report, home inventory is up 22% compared to a year ago, giving buyers more bargaining power in the current market.