Rising interest rates and soaring home prices in the Bay Area make renting a better option for some

SAN FRANCISCO (KPIX) – With mortgage interest rates rising and home sales prices at record highs, some experts say renting may be a better option for some people, in some scenarios, if they want to save money.

“The Bay Area is the most expensive major metropolitan area in the country. It’s extremely expensive to buy a home there, and it’s almost as extraordinarily expensive to rent a home in the Bay Area,” said Jeff Tucker, a senior. economist at Zillow. “For any short-term horizon, yes, it’s cheaper to rent a house than to own one in the Bay Area.”

Tucker provided KPIX 5 with data that shows the month-to-month cost difference between buying and renting:

In the San Francisco subway:

  • Typical home value is $1,500,189, up 18.5% year-over-year and 33.6% since 2019
  • Mortgage payments on a typical home are $8,117 per month. That’s up 52.8% from May 2021 and 5.4% from April
  • Typical rents are $3,214, up 10.3% since May 2021

In the San José metro:

  • Typical home value is $1,706,565, up 22.4% year-over-year and 37.6% since 2019
  • Mortgage payments on a typical home are $9,136 per month. That’s up 57.1% from May 2021 and 5.4% from April
  • Typical rents are $3,295, up 12.1% since May 2021

“The Bay Area and California in general have some of the highest cost of ownership in the country relative to the cost of renting in that region,” he said. “What’s really tipped the scales lately is this increase in mortgage rates, which just has this huge multiplier effect on the cost of ownership.”

There’s a potential upside to buying, despite the higher cost, Tucker says. However, it is difficult to predict.

“When you own that house, you also get that potential appreciation in the price of the house,” he said. “That’s the part that’s much more speculative.”

Jordan Levine, vice president and chief economist for the California Association of Realtors, agrees that people will save money in the short term in these market conditions by renting.

“Not only are you paying more for these homes as a buyer, but they’re costing you more to carry that mortgage on a monthly basis,” he said. “That kind of tends to reduce or impact the comparison you make in terms of renting and owning.”

However, Levine says people are unlikely to save as much as they think over the long term and could lose a substantial accumulation of wealth if they choose to rent long term.

“When you get 5, 6, 10 years down the road in a rental, it hasn’t done anything for your net worth, even if you’re saving on a monthly basis. Stats show that you generally don’t go out and do a dazzling bunch of financial investments and end up as good as you would have been if you had bought a house,” he said. “It’s more expensive today to buy a house than it is today. has never been before. Rates are higher. This does not detract from the ability of these assets to generate wealth in the future. But, there’s just a real barrier to the income that people have to be able to pay those prices too. »

Levine notes that a mortgage will likely be a fixed rate and won’t fluctuate like rent will.

“Your rents will likely continue to rise whether or not we get near-term inflation under control,” he said. “Rents generally tend to go up while you lock in a mortgage, your costs are fixed, assuming you get a fixed rate loan.”

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