The answer to that age-old real estate question - rent vs. buy - might actually be quite clear for many throughout the U.S. Based on new data and studies, in many major American cities, apartment dwellers might be missing out on a fantastic financial opportunity by sitting on the sidelines rather than buying. That's true due to a confluence of economic factors.
A recent study of home prices from Trulia found that in the nation's 100 biggest metropolitan areas, homeowners always came out ahead of renters after seven years. Taking into account average mortgage payments, home values and monthly rent, Trulia found that on average, homeowners spent 33 percent less than renters in terms of housing expenses. That's assuming a 30-year fixed-rate mortgage at 4.1 percent interest, a 20 percent down payment and applicable tax deductions.
Of course, this effect was more pronounced in some cities. Owners came out ahead of renters by as much as 50 percent in Baton Rouge, Louisiana, for example, but only 3.5 percent in San Jose, California. Other cities that finished near the top of the list include Philadelphia, New Orleans and Columbia, South Carolina. In these cities, according to the Home Buying Institute, buying is basically "a no-brainer."
Much of this phenomenon is due to low interest rates on home loans, which keep borrowing costs down for homeowners. As home values continue to climb, that investment in a home begins to pay off in the form of equity. By the time homeowners sells their house, they could be looking at a sizeable profit, or at least breaking even, at the end of the day.
Note of caution
However, there are caveats to this data, as CNBC pointed out. Primarily, some critics argue that buying only beats renting if buyers can find a home that's actually affordable. This is becoming harder as demand for housing continues to surpass supply. Based on data from the National Association of Realtors, CNBC reported that home listings in April fell to 9 percent less than the same time last year. Even more challenging for buyers, CNBC noted that the most affordable segment of the housing market is also the hardest to buy into.
Ultimately, the choice to buy or to rent might depend more on individual financial situations. But if you can manage it, chances are you will come out on top.