We've known for quite some time Millennials are quite different than their predecessors. They're getting married and having kids at an older age, waiting longer to buy houses and bringing a completely different list of housing "wants" when they do decide to buy. But here's further proof that this generation is better off buying than renting.
Rent vs. Buy Report with a Millennial Perspective
When Trulia performs their annual Rent vs. Buy report, they usually use a model of a homebuyer financing with a 30-year, fixed-rate mortgage with a down payment of 20% and plans to move every seven years.
With those guidelines, buying is 36% cheaper than renting on a national basis, based on September home prices. Buying is also cheaper than renting in each of the nation's 100 largest metros. But that model doesn't fit the typical homebuying scenario faced by the Millennial generation.
So Trulia used the Millennial circumstance above in their most recent Rent vs. Buy report, and this is what they found.
Where It's Cheaper to Buy & Cheaper to Rent
According to Trulia's findings, the rent vs. buy gap differs vastly across the nation's largest U.S. metros due to varying home and rental prices, property taxes, and home price appreciation. With those factors taken into account, buying a home ranges from being 5% more expensive than renting in Honolulu to being 46% cheaper to buy a home in Houston.
San Jose is the only other city where buying is more expensive than renting for Millennials, where they'd pay 2% more to purchase than rent. San Jose is followed by several other California metros, like San Francisco and Orange County, where the buying vs. renting metric is a close call.
Millennials living in Southern or Midwestern markets tend to have an easier decision when considering buying over renting. Metros in Texas, Louisiana, Florida, Michigan and Oklahoma were included on the top 10 list of markets where buying was much better than renting.
What Could Close the Gap for Some Millennial Homebuyers
According to Trulia, mortgage rates would have to nearly double to approximately 6.5% to equalize the entire buy vs. rent equation for Millennial homebuyers, but with the pending federal funds rate hike, a significant bump in mortgage rates could minimize mortgage affordability for young buyers.
For instance, in 10 of the nation's largest metros, a mortgage rate bump ranging from 0.55% to 1.35% could equalize the rent vs. buy equation.
For now, interest rates are still near historic lows, home prices are appreciating due to low supply, and the rental market is experiencing record-breaking price inflation. If you've been on the fence about buying a home, now is a great time to explore your loan options, several of which require little to no down payment.
For all the information you need to know about buying and financing a home, download our free Mortgage 101 Handbook, a great resource for first-time homebuyers.