As the purchase market heats up and buying a house gets more competitive, many borrowers may be asking why they’re going through the stress, anxiety and headaches of the homebuying process. Single family rental developments have taken off, and it might be easier or even more financially sensible to rent in the suburbs rather than buy. While the emotional resonance of property ownership and the American Dream are certainly compelling, sometimes you need to make the brass-tacks case that buying a home makes more financial sense than renting.

To see if such a case might be made, Odeta Kushi (pictured), deputy chief economist at First American, looked at 50 housing markets across America to see if renting or buying made more financial sense. In all but two of those markets (San Jose and San Francisco), owning made more sense than renting. Even in locations where house price appreciation meant the monthly cost of ownership was slightly higher than renting, a key element of ownership made it the better financial option: equity appreciation.

“We started this study looking at median monthly mortgage payments in our top 50 markets compared to the median rent. When we did that, we found it was cheaper to rent rather than own in 32 markets,” Kushi said. “But when we did that we thought, wait, owning is very different from renting because you get the benefit of equity, the benefit of house price appreciation. When we accounted for house price appreciation in that monthly cost of owning, we found that it was more financially prudent to own rather than rent in 48 out of the top 50 markets in the USA.”

While the two outliers were both in extremely expensive markets around Silicon Valley, Kushi explained that Phoenix, Arizona, was the market where it made the most sense to own rather than rent. 

While Kushi accepts a future rise in mortgage rates could cool off some of the demand currently driving the pace of house price appreciation, she also noted that house price appreciation tends to be “downside sticky.” Sellers, she noted, would often rather withdraw from the market than sell at lower prices in the housing market, keeping supply tight and appreciation up. Moreover, with rates and housing supply as low as they currently are, we can still count on broadly strong house price appreciation even if rates do tick up somewhat.

For mortgage professionals looking to communicate this information to prospective borrowers, Kushi offered a straightforward takeaway: the house is paying you. Borrowers buying in markets experiencing rapid house price appreciation can enjoy measurable growth over time. Moreover, another study by First American found that housing is one of the biggest drivers of wealth creation in the United States. For a new borrower, especially a first-time borrower, buying a home with an eye to appreciation means buying into this wealth creation.

Kushi emphasized that this financial case for ownership needs to be folded into the wider lifestyle questions around why a borrower wants to buy a home. Mortgage professionals should offer this information as a value add, one that supports the borrower’s wider hopes and dreams.

“I think the takeaway from this study is that borrowers will also get the equity benefits from buying that home,” Kushi said. “But keep that in mind – they’re making this lifestyle decision. It’s something that that has been on the docket for a lot of millennials to do once they get married and have kids. They’re making that [lifestyle] decision, but also, in a lot of these markets, they’re gaining the equity and the wealth creation from that home. Homeownership has really been essential to the American dream, largely because it is a vehicle for wealth creation. I think that that’s something that mortgage professionals can use this study to show.”