SpeedKingz / Shutterstock.com

A new report from Trulia warns young households against buying a home in Honolulu or San Jose.

Millennials have been slow to buy homes. In fact, the homeownership rate for adults under 35 remains at record lows, even though the economy has picked up and interest rates remain low.

And that’s the case even though Millennials (ages 25-34) would be better off buying than renting in all but two metros across the country, according to a new report from real-estate website Trulia. Using data for median home price and median monthly rent from the U.S. Census’ 2014 American Community Survey and their own consumer poll, Trulia finds that buying a home is 23 percent cheaper than renting for Millennials nationwide. (This data assumes a 3.85 percent mortgage rate on a 30-year fixed-rate loan, a 10 percent down payment, itemized tax deductions at the 25 percent tax bracket, and staying five years in a home.)

Buying was cheaper in 98 out of 100 of the nation’s top housing markets, even though home prices vary widely by metro. Unsurprisingly, the metros where renting beats buying—or comes close to it—are among the most expensive metros in the U.S. Of the 10 metros with the lowest rent vs. buy gap, three were located in the uber-expensive Bay Area (San Jose, San Francisco, and Oakland) and yet another three were located in Southern California (Orange County, Ventura County, and San Diego), in addition to Sacramento and New York. The only two metros where renting beats buying outright are Honolulu, Hawaii and San Jose, California—two of the most expensive places on the planet.

Top 10 Metros Where Renting Beats Buying

Metro Median Home Price, Sept. 2015 Median Rent, Sept. 2015 Cost of Buying vs. Renting, Sept. 2015
Honolulu $612,642 $2,500 5%
San Jose $907,806 $3,500 2%
Orange County $639,129 $2,800 -5%
San Francisco $1,100,000 $4,400 -7%
Oakland $617,357 $2,800 -7%
Sacramento $326,910 $1,650 -8%
Newark $326,045 $2,200 -10%
San Diego $488,959 $2,325 -10%
Ventura County $514,053 $2,500 -11%
New York $437,834 $2,350 -11%

But the picture is very different in much of the country, especially in the South and Midwest. In Houston, for instance, buying a home is 46 percent cheaper for Millennials than renting. In Baton Rouge, it’s 45 percent; in Syracuse, 44 percent. Buying is a much better bet than renting even in Fort Lauderdale (44 percent) and Miami (43 percent), two of the hottest vacation markets in the country that have attracted a ton of foreign investment in recent years. (These prices are driven by non-waterfront homes, which are considerably cheaper.)

Top 10 Metros Where Buying Beats Renting

Metro Median Home Price, Sept. 2015 Median Rent, Sept. 2015 Cost of Buying vs. Renting, Sept. 2015
Houston $162,784 $1,550 -46%
Baton Rouge $154,940 $1,395 -45%
Syracuse $118,999 $1,375 -44%
Fort Lauderdale $200,734 $1,750 -44%
Miami $241,740 $1,955 -43%
New Orleans $169,688 $1,500 -43%
Tampa $151,974 $1,300 -42%
Oklahoma City $130,095 $1,195 -42%
Detroit $60,465 $850 -42%
San Antonio $141,907 $1,295 -42%

All that said, buying was an even better option back in 2012 in many metros, before prices rose. The following table shows the metros where the gap between renting and buying has significantly narrowed over the past three years. In Las Vegas, for instance, buying was 43 percent cheaper than renting in 2012, compared to only 20 percent in 2015. This is due to the fact that the median cost of a home increased significantly over past three years, while the median cost of rent increased only slightly. Many of the metros with increasingly narrow rent vs. buy gaps are again located in California: Bakersfield, Fresno, Riverside, Ventura County, San Diego, Sacramento, and Orange County.

Top 10 Metros Where House Hunters Should Have Bought in 2012

Metro Cost of Buying vs. Renting, Sept. 2012 Cost of Buying vs. Renting, Sept. 2015 Difference in Cost of Buying vs. Renting, 2012-2015
Las Vegas -43% -20% +23%
Riverside -41% -21% +20%
Bakersfield -46% -26% +20%
Sacramento -27% -8% +20%
Phoenix -41% -23% +18%
San Diego -27% -10% +17%
Fresno -38% -22% +16%
Ventura County -27% -11% +16%
Warren–Troy–Farmington Hills -45% -29% +15%
Orange County -21% -5% +15%

Other metros have experienced the reverse. In San Antonio, Texas, for instance, buying was 33 percent cheaper for Millennials than renting in 2012, and is now 42 percent cheaper today. Metros like New York, Houston, and Cincinnati also saw an increase in their rent vs. buy gaps, though these increases were slight (roughly 3-6 percent).

Top 10 Metros Where Buying is Better Than Renting Today

Metro Cost of Buying vs. Renting, Sept. 2012 Cost of Buying vs. Renting, Sept. 2015 Difference in Cost of Buying vs. Renting, 2012-2015
San Antonio -33% -42% -8%
Akron -25% -31% -6%
Long Island -16% -21% -6%
New York -6% -11% -5%
Greenville -35% -39% -4%
Albuquerque -21% -25% -4%
Birmingham -34% -37% -3%
Cincinnati -31% -34% -3%
Kansas City -31% -34% -3%
Houston -44% -46% -3%

But with interest rates predicted to rise by the end of 2015, the prices of renting and buying could equalize in large California markets. Ultimately, the report concludes that three California metros—Orange County, San Francisco, and Oakland—are the most vulnerable to a “mortgage rate tipping point,” where renting becomes cheaper than buying. Nationally, however, these rates would have to almost double to make the costs of renting and buying the same.

Given these economic fundamentals, it seems surprising how few Millennials are purchasing homes these days. Although a low rate of Millennial home ownership makes sense in superstar cities like New York, L.A., or San Francisco—where prices are high and housing is out of reach—it makes much less economic sense in the Midwest and Sunbelt markets, where homes are more affordable and cheaper to buy than rent. It will be telling to see whether Millennials catch on to the evidence that buying is more cost effective, or if they prefer to stay renters instead.

Top image: SpeedKingz / Shutterstock.com

About the Author

Richard Florida
Richard Florida

Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is the director of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at New York University.

Aria Bendix
Aria Bendix

Aria Bendix is a frequent contributor to The Atlantic, and a former editorial fellow at CityLab. Her work has appeared on Bustle and The Harvard Crimson.

Most Popular

  1. Two New York City subway cars derailed on the A line in Harlem Tuesday, another reminder of the MTA's many problems.
    Transportation

    Overcrowding Is Not the New York Subway's Problem

    Yes, the trains are packed. But don’t blame the victims of the city’s transit meltdown.

  2. Homeless individuals inside a shelter in Vienna in 2010
    Equity

    How Vienna Solved Homelessness

    What lessons could Seattle draw from their success?

  3. Members of a tenants' organization in East Harlem gather outside the office of landlord developer Dawnay, Day Group, as lawyers attempt to serve the company with court papers on behalf of tenants, during a press conference in New York. The tenant's group, Movement for Justice in El Barrio, filed suit against Dawnay, Day Group, the London-based investment corporation "for harassing tenants by falsely and illegally charging fees in attempts to push immigrant families from their homes and gentrify the neighborhood," said Chaumtoli Huq, an attorney for the tenants.
    Equity

    Toward Being a Better Gentrifier

    There’s a right way and a wrong way to be a neighbor during a time of rapid community change.

  4. Postcards showing the Woodner when it used to be a luxury apartment-hotel in the '50s and '60s, from the collection of John DeFerrari
    Equity

    The Neighborhood Inside a Building

    D.C.’s massive Woodner apartment building has lived many lives—from fancy hotel to one of the last bastions of affordable housing in a gentrifying neighborhood. Now, it’s on the brink of another change.

  5. Citi Bikes are pictured.
    Videos

    A Stark Comparison of Parking Vs. Bike-Share Spaces

    Watch New Yorkers swarm a Citi Bike station like mad ants while cars sit virtually idle across the street.