Here's a cost comparison across the most populous states in the country
Should I buy or rent a house? This is perhaps one of the more critical questions asked by home seekers –
especially since the costs of homeownership can vary widely from state to state.
Based on our analysis of the latest census data and 30-year fixed mortgage rates as reported by the Federal Reserve, renting is currently cheaper than buying in eight out of the 10 most populous states in the country. However, the gap between monthly rent and ownership costs can be lower than $50 in some states, so buying a house can sometimes make more financial sense.
Below, we look at the pros and cons of buying a home and renting one, and how the situation varies depending on your chosen location.
Differences between renting and buying
There are various costs associated with buying versus renting a house, and these heavily depend on the location and its prevalent market conditions. Moreover, each has its own advantages that may be suitable for your financial situation and housing needs.
For instance, buying a house can help you build equity and possibly earn tax benefits. However, you can also expect to go through a lot of paperwork, as well as provide 3% to 20% of the property’s value upfront as a down payment.
Homebuyers should also prepare for expenses on top of their mortgage payments, such as closing costs and homeowners insurance.
On the other hand, owning a home gives you more freedom for improvements and upgrades. Just remember that you will also be responsible for remodeling and repair costs.
Conversely, renters don’t need to worry about maintenance expenses – though they have a landlord to answer to.
Lastly, you have to consider your need for mobility. Renters have more freedom to end their contract and transfer residence, while owners have to stay for five to seven years to reach their break-even point, says Forbes.
Your zip code matters
The COVID-19 pandemic has shaken up housing costs in the country and highly populated areas are among the most affected, according to the Journal of Financial Markets and Portfolio Management.
As such, knowing the current housing costs even if they are constantly in flux can help you make the best financial decision.
You should also do your research regarding the number of years that it will take before the cost of buying equals the cost of renting. This is known as the breakeven horizon, and it’s heavily influenced by a property’s location.
“If you'll stay in your home past the breakeven horizon, consider buying; if you'll move sooner, renting might be a better option,” says real estate marketplace firm Zillow.
Below, we list the 10 most highly populated states in America together with data on homeownership and rent costs to help you decide.
Population data was obtained from the Census Bureau, while information on monthly rent and mortgage payments was obtained from the personal finance website Gobankingrates.com and Business Insider. The prices indicated are for a single-family residence.
However, you should note that these are median values for the entirety of each state and should be used for comparative purposes only. You can expect your quote to be different depending on the city and your credit score.
- Population: 39,512,200
- People per square mile: 254
- Average rent: $2,598
- Monthly home payment: $2,282
The median home value in California is around $550,000, which is almost twice the national median of $226,000, according to Zillow data. In 2020, home values in the state increased by about 2% with a projected rise of only 0.1% by the end of 2021.
In short, California’s high-priced property market has little expected gains and is probably looking at a downturn.
Renting is more expensive at $2,598 a month on average but would seem to be the more favorable option due to the possibility of a down period in the market. However, it’s not that simple because housing prices are widely different across locations within the state.
For example, the median monthly home payment in San Francisco is $5,400 and the monthly rent is $3,100. Additionally, the average home price in San Francisco is $1.41 million, while the average is $291,400 in Vacaville, just an hour away by car.
The bottom line is that you should carefully consider your length of stay when buying a house in California, According to Zillow data, owning a house becomes more lucrative than renting if you will stay for at least three years in this state.
- Population: 28,995,900
- People per square mile: 111
- Average rent: $1,486
- Monthly home payment: $1,549
The gap between renting and owning costs is not significantly pronounced across the state, but the spread has surpassed $635 per month in major metropolitan areas like Austin, Dallas, Houston, and San Antonio.
And the recent housing price hikes have made renting 50% cheaper than owning a home in the Dallas area.
“With home costs increasing in Texas’ major metros, renting is increasingly cheaper than ownership — even with low mortgage rates,” says The Dallas Morning News.
Meanwhile, that statewide median price of $241,100 is much lower than the median price of $540,000 in Austin, and 16% cheaper than the rest of the United States.
If you are keen on buying a house, you should consider living in cities like Cedar Park, El Paso, and Galveston. These places are more affordable, especially because Texas is exempt from paying state income taxes.
- Population: 21,993,000
- People per square mile: 401
- Average rent: $1,658
- Monthly home payment: $1,466
Florida is the second-most densely populated on this list and the eighth in America. Generally speaking, buying makes more financial sense than renting in most locations within the state.
Despite being one of the most popular retirement and vacation destinations in the country, buying a home and living in Florida is still fairly affordable.
The median home value in the Sunshine State is $289,799, while the cost of living is 1% lower than the national average, according to the World Population Review (WPR).
Homeownership also becomes more lucrative the longer you stay, making the state more attractive to retirees who are likely to buy a house. After all, Florida has one of the highest population percentage of people aged 65 and above at 20.5%.
For instance, only 19 out of 159 zip codes in South Florida offer savings for renting instead of buying, according to the South Florida Business Journal.
4. New York
- Population: 19,453,600
- People per square mile: 413
- Average rent: $2,067
- Monthly home payment: $2,114
Looking at statewide averages, renting appears marginally cheaper than buying a house in New York.
However, it’s difficult to provide a straightforward answer for states like New York and California with an extremely varied housing market.
For example, the median house value in New York State is $364,000 while the price in New York City is $657,500. This means homebuyers are likely to find homes cheaper than $300,000 in areas like Albany or Kingston, but not inside Manhattan.
As for renting, it’s significantly more affordable than buying in New York City.
“The greatest difference between the median rent and the median cost of owning a home with a mortgage was in New York City, at $1,363 a month,” says The New York Times. “Landlords struggle to fill record numbers of vacant apartments by offering rent cuts and concessions.”
- Population: 12,802,000
- People per square mile: 286
- Average rent: $1,258
- Monthly home payment: $1,474
The median home value in Pennsylvania is $229,000, making it the second-lowest figure on this list next to Michigan.
While rent is cheaper statewide than monthly ownership costs by $216, it’s more advantageous to buy a house in its major metropolitan areas.
For example, single-family residences in Pittsburgh and Philadelphia are worth between $214,000 to $218,000 on average. A 30-year loan will typically require a monthly payment of $1,000 to $1,200, whereas rent can easily reach $1,600.
In fact, you can quickly reach your break-even point in just two years and two months if you buy a house in Pennsylvania. Regarding affordability, Pennsylvania’s real estate and rent prices are 70% and 50% lower than its close neighbor, New York.
- Population: 12,671,800
- People per square mile: 228
- Average rent: $1,491
- Monthly home payment: $1,668
If you’re planning to live in Illinois, you should consider buying a house instead of renting one.
Homeownership costs are 20% lower than the US median at $229,400 and the cost of living is more affordable than 29 other states.
Renting is still marginally cheaper than owning a house in this state, but you can expect the gap to shrink as rent prices continue to increase in some areas.
For example, Cook County is among the Illinois counties where average rents are rising faster than average household incomes.
But again, it depends on your chosen location and intended length of stay. Let’s say you plan on staying in Chicago for one to three years. This may be a good time to rent since prices fell by 12% in 2020, according to the Chicago Tribune.
- Population: 11,689,100
- People per square mile: 286
- Average rent: $1,136
- Monthly home payment: $1,269
With a typical home value of $179,000, Ohio is one of the most affordable places to buy a home. Average rent prices are marginally lower, but Zillow data suggests that buying is the more financially advantageous choice.
Buying will be cheaper than renting in a little over two years because of your home equity, according to Zillow’s breakeven horizon calculator.
Additionally, the cost of living in the state is 15% lower than the national average. You can also enjoy lower housing, utility, and transportation costs in places like Lancaster, Akron, Cincinnati, and Newark.
Even in metropolitan clusters such as Canton-Massillon, Cleveland-Elyria, and Columbus, you will likely find a home that’s priced cheaper than $150,000.
- Population: 10,617,400
- People per square mile: 185
- Average rent: $1,310
- Monthly home payment: $1,383
Georgia has a median home value of $241,200, which is 16% more affordable than the rest of the country. So it makes financial sense to buy a home since it’s just $73 more expensive than the average monthly rent.
Breaking even on your home is also relatively fast in Georgia’s major cities. A case in point is Atlanta, where the net costs of purchasing a property will be cheaper than renting in just one year and 10 months.
Furthermore, Georgia is the ninth state with the lowest cost of living on WPR’s list. There are also state-specific programs designed for helping first-time homebuyers with low or moderate incomes.
For example, buyers with a credit score of 640 and above can qualify for the Georgia Dream program. If approved, you can get a mortgage with just a 3.5% down payment.
The state government also offers the Georgia PEN program to first-time buyers who qualify as “protectors, educators, and nurses”. This program provides financial assistance for mortgage closing costs to applicants who belong in these professions.
9. North Carolina
- Population: 10,488,100
- People per square mile: 216
- Average rent: $1,246
- Monthly home payment: $1,290
Renting and buying costs in North Carolina have plateaued since 2016, according to Gobankingrates’ data.
The state’s homeownership cost is around $243,000 which is roughly as cheap as Georgia when compared to the national median of $287,100. This means that purchasing a house is a good choice, considering that it’s more expensive than renting only by $44.
You can find the cheapest houses in Winterville, King, Marion, and Sawmills. With prices hovering around $100,000, it’s more cost-effective to buy and build your home equity in these areas than paying an annual rent of $50,000 to $70,000.
For instance, you can reach your break-even point after owning a house in Caldwell County for just 19 months. That’s almost a year faster than the average in North Carolina.
- Population: 9,986,857
- People per square mile: 177
- Average rent: $1,135
- Monthly home payment: $1,279
With a median home value of $205,000, Michigan is one of the most affordable states to buy a new home. It’s also the seventh state with the lowest cost of living, according to WPR.
Average rent is again marginally cheaper by $142 per month, but ownership will likely be cheaper than renting after just two years in Michigan.
Moreover, home prices in major cities are also lower than the state average, so you can live closer to your workplace. In particular, the median house price is $123,400 in Lansing and just $51,100 in Detroit.