Renters in These 25 Cities Should Be Thinking About Buying a Home

It's always an unwelcome piece of mail: Your landlord announces a hike in your monthly rent. Now what?

You could search your budget for ways of meeting the new demands. You could consider packing up and moving to another apartment. The problem is, those solutions are not only difficult, but you may face them year after year as rents continue to rise.

Instead, you could solve the problem once and for all by buying a home.

Owning a home is not for everybody, but when rents are rising rapidly, you should at least be thinking about buying a home. According to some new data on rental rates, in particular, there are 25 metropolitan areas in the United States where fast-rising rents should definitely be a cue to look into the economics of owning rather than renting.

When to Rent vs. When to Own

Besides month-to-month costs, here are four key factors in the decision to rent vs buy:

  1. Putting down roots. If you are not sure you are going to stay in your current city for long, renting makes perfect sense. If you are ready to put down roots though, buying may be a viable option.
  2. Stability of family situation. Similarly, if you have not yet made decisions about things like marrying or having a family, you may not be ready to commit to one type of residence or another. As those factors stabilize, the right long-term housing solution tends to become more clear.
  3. Locking in housing costs. Besides an immediate comparison of rental versus purchase costs, keep in mind that an important benefit of owning is that if you get a fixed-rate mortgage you can somewhat stabilize your housing costs, as opposed to being exposed to rent increases year after year.
  4. Building equity. Another reason to look at the cost of buying a little differently from the cost of renting is that some of your mortgage payments go towards building equity – effectively, you are paying yourself. When you rent, you are paying nobody but the landlord.

Where Fast-Rising Rents Should Get You Thinking About Buying a Home

The factors listed above always have to be weighed against the numbers – what does it cost to rent versus what does it cost to buy? It's not an apples-to-apples comparison, because buying has the added benefits of stabilizing your housing costs and allowing you to build equity. Still, the relationship between rental costs and the cost of buying is a key factor in the decision of whether to rent or to buy. When that relationship changes significantly, it may be time to re-evaluate that decision.

In some markets last year, rents rose quickly enough that it might tip the balance towards buying rather than renting. Altisource Portfolio Solutions provides the RentRange reports on rental market conditions, and recently released a list of the 25 metropolitan areas with the fastest increases in year-over-year rent rates. The following are those markets, along with the percentage increase in rental rates during 2015.

Rank

  Metropolitan area  

2015 Change in Rent

1

  Cape Coral-Fort Myers FL  

25.4%

2

  Shreveport-Bossier City LA  

19.6%

3

  New Orleans-Metairie-Kenner LA  

15.1%

4

  Deltona-Daytona Beach-Ormond Beach FL  

14.9%

5

  North Port-Bradenton-Sarasota FL  

13.6%

6

  Port St. Lucie FL  

13.3%

7

  San Jose-Sunnyvale-Santa Clara CA  

12.1%

8

  Providence-New Bedford-Fall River RI-MA  

12.1%

9

  Little Rock-North Little Rock-Conway AR  

11.4%

10

  Knoxville TN  

11.1%

11

  Charleston-North Charleston SC  

10.6%

12

  Los Angeles-Long Beach-Santa Ana CA  

10.0%

13

  Kansas City MO-KS  

9.9%

14

  Portland-Vancouver-Hillsboro OR-WA  

9.6%

15

  Sacramento-Arden-Arcade-Roseville CA  

9.4%

16

  Denver-Aurora CO  

9.4%

17

  Rochester NY  

8.9%

18

  Vallejo-Fairfield CA  

8.6%

19

  Columbia SC  

8.5%

20

  Fayetteville-Springdale-Rogers AR-MO  

8.3%

21

  Dallas-Fort Worth-Arlington TX  

8.2%

22

  Oxnard-Thousand Oaks-Ventura CA  

7.9%

23

  San Diego-Carlsbad-San Marcos CA  

7.8%

24

  Honolulu HI  

7.8%

25

  San Francisco-Oakland-Fremont CA  

7.7%

The Wake-Up Call

Rent increases of those magnitudes should be a wake-up call – when it happens, you should be thinking about buying a home.

Naturally, fast-rising rents could make the economics of buying more attractive, but also they remind renters of a fundamental financial risk they face. They essentially have no control over their housing costs beyond the length of a lease. That means they could be forced to move if their current rental becomes unaffordable, and in some cases they might be priced out of an area altogether if rents generally are rising fast enough, as in the case of the markets on the above list.

This goes beyond financial hardship. Being priced out of an area can affect your job prospects and disrupt children who are established in a school district. Buying a home can stabilize the situation, giving you more control over your finances and you family's future. For renters in the cities on the above list, the wake-up call has sounded.

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