Lower mortgage rates are breathing new life into the dream of homeownership.
That’s according to a new analysis by Zillow Home Loans, which found that monthly mortgage payments are now lower than rents in 22 of the 50 largest U.S. cities. Buyers in New Orleans and Chicago, for instance, can save more than $400 a month by buying instead of renting. On a national level, the report found the typical mortgage payment is $236 lower than the typical rent payment, assuming the buyer can put 20% down and qualify for a 6.5% mortgage rate on a 30-year fixed-rate loan.
“For buyers who have [been] waiting in the wings, today’s market represents a good entry point,” Orphe Divounguy, senior economist at Zillow Home Loans, tells Money. Mortgage payments on a typical home purchased today would cost a buyer $1,200 less per year than one bought in May, when rates were at a 2024 peak, he adds.
The easing affordability is a welcome development amid what’s been a tough environment for people looking to purchase a home. In 2023, rising interest rates and home prices pushed many prospective buyers out of the purchase market entirely as renting became the more affordable option.
But owning property, which has long been considered one of the best long-term investments, will likely become more possible in the coming years. With the Federal Reserve cutting short-term interest rates this week, mortgage rates are expected to move lower over time, further improving the prospects of buying a home.
Buying or renting: Which makes more financial sense?
Just because mortgage rates are lower doesn’t necessarily mean that buying property is the right move for you. The decision will also depend on your lifestyle, income and future goals.
If, for example, you are confident you’ll be staying in the same city for at least the next five to seven years, it might be better to buy. You’ll likely have time to build up equity, won’t have to deal with yearly rent increases and can customize the space to fit your lifestyle. You could also deduct the interest paid from your taxes.
On the other hand, renting may be the right option if you aren’t sure you’ll stay put. You’ll have greater flexibility to move on short notice without worrying about selling the property. You’ll also have lower upfront costs and won’t have to pay for maintenance.
There are costs other than the mortgage to consider when buying, too, like the down payment. Homeowners must also budget for property taxes, homeowners insurance, utilities and maintenance costs. But renters may need to pay renters insurance, as well as extra for utilities, pets or parking.
Consider all the pros and cons of renting versus buying to ensure you are financially ready for whichever option you choose.
The top 10 cities where buying is cheaper than renting
Whether you should rent or buy will also depend on where you’re hoping to live. These are the top 10 U.S. cities where buying is cheaper than renting followed by how much you’ll save each month by buying, according to Zillow’s report.
- New Orleans, Louisiana: $446
- Chicago, Illinois: $434
- Pittsburgh, Pennsylvania: $321
- Miami, Florida: $314
- Memphis, Tennessee: $290
- Cleveland, Ohio: $265
- Detroit, Michigan: $213
- Tampa, Florida: $191
- Oklahoma City, Oklahoma: $188
- Houston, Texas: $182
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