The Most Expensive Big Cities to Make the Leap From Renter to Homeowner

The Takeaway: Out of 20 popular U.S. housing markets, homeowners in Austin, Texas, pay the highest homeownership premium: about 77% more each month than renters pay.

It’s been said that a house is made of bricks and beams, while a home is made of hopes and dreams.

That may be a corny little ditty, but it does highlight the desire of so many people to have a place of their own.

But making those dreams come true can be challenging for many families in cities across America as they struggle to make the leap from renter to homeowner.

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The Federal Home Loan Mortgage Corporation, or Freddie Mac, said that, as of the fourth quarter of 2020, the U.S. had a housing supply deficit of 3.8 million units.

Mortgage rates have been slowly easing lately after reaching the highest levels since 2002.

Meanwhile, Federal Reserve Chairman Jerome Powell warned on June 21 that the central bank’s inflation fight has a “long way to go” and that further interest rate hikes will likely be needed to tame consumer-price pressures over the coming months.

Is it More Cost Effective to Rent or Own?

For the longest time, renting property has been considered by many to be a waste of money. People are often told they should be directing their hard-earned dollars into building equity.

But sometimes renting is necessary. And, believe it or not, it can also be a good financial move. Renters, for example, don’t have to pay property taxes or homeowners insurance and they don’t have any surprise maintenance or repair bills.

And, unlike homebuyers, they don’t have to make a large down payment on a mortgage.

The choice between renting or owning a home is obviously a personal one, but the financials can vary greatly depending on where you live.

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Where It’s Cheaper to Stay a Renter

A study by John Burns Research & Consulting found that the monthly premium to own versus rent reached $1,030 per month in April 2023, compared with $884 per month a year prior. The price differential has at least one obvious effect: It increases demand for rental homes while reducing demand for homeownership.

The study noted that the monthly homeownership premium is below the national average of $1,030 in 15 of the 20 most popular markets for single-family rentals, mostly because homes in these markets can be purchased at prices where the rents achieve a good yield for the landlord. 

The research group put together a list of several major American cities to compare the cost of owning with the cost of renting a single-family starter home, which you can see below. The dollar amount represents how much more expensive it is to own a single-family home than rent.  

In the most expensive markets in the country, the report said, where the homeownership premium is substantial, single-family rental landlords have not been able to grow their businesses.

In compiling the list, the John Burns researchers said the cost of owning includes payments and maintenance. They assumed that the purchase of the home is at 80% of the current median-priced existing home with a 5% down payment and a 30-year fixed rate-mortgage.

Austin is the nation’s fastest-growing metropolitan area, and it also tops the list as the city where it’s cheapest to rent. The research firm estimated that monthly payments are $1,664, or 77%, more for owners of an entry-level home in the Texas state capital compared with renters.

On the other side of the equation, there’s Indianapolis, where monthly payments for homeowners are just $117, or about 7%, more than monthly payments for renters who occupy a similar-sized home.