Running the Numbers: 41%

Photograph by Ocean/Corbis Close

Photograph by Ocean/Corbis


Photograph by Ocean/Corbis

That’s how much cheaper it is nationally to buy a home rather than rent, according to research by Trulia Trends. That's some welcome news for homeowners who've endured a protracted season of low valuations and high debt.

The calculation assumes you get a 3.9 percent, 30-year fixed mortgage and make a 20 percent down payment, stay in your home for 7 years and deduct mortgage interest and property tax payments at the 25 percent tax bracket. 

The point at which buying is no longer more economical than renting? Trulia calculates that mortgage rates would have to move up to 10.5 percent nationwide.

The economics vary greatly by city. In Cleveland, Memphis and Detroit, rates would have to rise above -- sometimes well above -- 20 percent. In San Jose, California, renting becomes more economical when rates get to just 5.2 percent. In San Francisco, rates would have to rise to between 5 percent and 6 percent, and in New York and Orange County, California, to between 6 percent and 7 percent, according Jed Kolko, the chief economist at Trulia.

Factors other than mortgage rates play an important role in the buy-versus-rent decision, such as the level of local home prices relative to rents. Kolko explains that prices of homes are higher relative to rents in San Jose than anywhere else, which is why it takes a relatively low mortgage rate of 5.2 percent for renting to become cheaper than buying. In Detroit, by contrast, where home prices are extremely low relative to rent, it takes a mortgage rate of 35.8 percent to make renting more economical.

While mortgage rates and housing prices are likely to keep rising, rates remain near long-term lows and housing prices are still recovering from their bust. So buying a house is still a better deal than renting. Even if average rates nationwide rise to 5 percent, according to Trulia, buying would still be 34 percent cheaper than renting.

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