Over 20 percent of millennials rent with a roommate, which is the highest rate recorded in the last 115 years. Splitting the rent is a conventional way to save on monthly housing payments, but leasing with a friend may not always be the most cost-effective strategy. Buying a starter home could cost young people less than their share of the average apartment – depending on where they live, at least.
In every major U.S. metro, buying a home at the median price point is cheaper than renting one.
But for millennials who don’t typically spend as much, and might currently share the rent with a friend, the calculations are more complex. In pricey metros like San Jose, California, where starter homes cost a median $649,929, splitting the median rent of $1,800 per month is the more economical choice. Normally, it’s 6.5 percent cheaper to buy the standard home than to rent alone in San Jose.
Although renting with a roommate may tip the rent vs. buy equation in some metros, first-time home buyers who share the rent aren’t always going to up their expenses. Consider the following two cities where buying a starter home is less expensive than renting with a roommate.
Detroit Wins Hands Down in Buy Versus Rent
As a whole, the Detroit metro area is one of the most affordable major cities in the nation. The median home price is $64,988, while the median rent is $900, helping buyers save 54 percent compared to those who rent. That’s assuming they put 20 percent down on a 30-year fixed loan at a 3.75 percent interest rate.
With those same mortgage specifics, starter home buyers are looking at a median price point of just $16,463, which would save 57 percent over half of the $450 median rent. Detroit leads the nation in both starter home buyer savings and the median rent vs. buy scenario.
However, prices can vary depending on the specific submarket. Warren real estate tends to cost more (median $128,950), even at the entry-level end of the market, but buying there may still offer a financial incentive depending on the price range.
Columbia Buyers Save More than 50 Percent
Another top metro for aspiring first-time home buyers craving freedom from the roommate grind is Columbia, South Carolina. The median starter home price is $59,533 while the median rent for roommates is $600, making homeownership 45.3 percent less expensive than leasing with friends.
For the everyday Columbia home buyer with a budget near the general median price of $125,952, buying is 52.6 percent cheaper than renting the same $1,200 apartment solo. Either way, investing in Columbia real estate instead of leasing is the all-around superior choice.
Starter Home Inventory Still a Challenge for Buy Versus Rent
Based on the median price of starter homes and median rents, West Palm Beach, Florida, Knoxville, Tennessee, Memphis Tennessee, Philadelphia, Birmingham, Alabama, Fort Lauderdale, Florida, Kansas City, Missouri, and Toledo, Ohio, also top the list of cities where buyers have lower monthly costs.
Even when the starter home price is right, inventory acts as a major hurdle for first-time home buyers in many metros. Recently, Trulia found that the number of entry-level homes for sale across the country plunged 20.4 percent since 2016. Although many renters with roommates may see the savings potential in homeownership, the bigger question is – can they find it?
Written by Jennifer Riner on behalf of Trulia.