Buy or rent? Depends where you live – and your long-term plan

Some cities demand 70% or more of the average paycheck to purchase a home

Buy or rent?

It’s a big question with an often-complex answer, especially when considering income and long-term goals and plans. 

But after crunching data – rent for a three-bedroom home, the median home price and wages – most Californians are better off to rent than buy, according to a just-released report by ATTOM Data Solutions.

Certainly, rents are rising in many regions, but home prices are increasing at a much faster – and larger – pace in the state.. For example, rent for a three-bedroom home has climbed 7.9% during the past year In the Inland Empire (Riverside and San Bernardino counties), but prices are up 17.2%.

(You can check out several regions in California and counties across the U.S. at the bottom of the post.)

Big prices demand more dollars

And the monthly mortgage payment, based on a 3% down payment, takes a much bigger chunk of paychecks compared to renting –  as much as 70%-plus in Los Angeles, San Diego and San Francisco-Oakland.

“Home prices are rising faster than both rents and wages,” says Todd Teta, chief product officer with ATTOM in Irvine.

But buying a home makes more financial sense than renting in almost three of every five markets in the U.S., according to ATTOM.

Except in California, where buying beats renting in only three markets – Hanford-Lemoore (Kings County) in the Central Valley, Redding-Red Bluff (Shasta County) and pint-sized Siskiyou County.

Some caveats to consider

It’s critical to remember that the ATTOM report looks at financial data, not the hard-to-quantify and often-overlooked benefits of homeownership. Homeownership is often the best way for a family to build generational wealth, benefiting from price gains and often writing off – at least partially – the interest on the mortgage. 

Plus, homeowners with a long-term mortgage rate know their monthly payment, which will likely be a smaller percentage of their income as they enjoy pay hikes down the ride. In addition, homeownership provides more security. 

And, finally, the data is based on the average rent, home price and income. So, if you earn more than the average and are looking at a lower-priced home, buying could be a money-saving move. 

Down payment is often the biggest hurdle

The big challenge for wanna-be buyers – also known as renters – is saving the dollars for the down payment, especially with double-digit home prices increases during the past year. Only one of every four households in California could afford to buy in the region where they live during the third quarter, according to the California Association of Realtors.

The average down payment ranges from about 23% in San Jose, where many employees earn $100,000-plus per year, to 5.3% in Bakersfield.

Numerous government assistance down payment programs, like those from the California Housing Finance Agency and Veterans Affairs, can help open the door to homeownership.

Of course, a bigger down payment will also cut the monthly mortgage payment, and help make homeownership less of a financial burden down the road.

Percentage of income needed to buy vs. rent
RegionBuy Rent
San Francisco-Oakland78.7%44%
Los Angeles-Anaheim74.7%49%
San Diego-Carlsbad72%50.5%
Riverside-San Bernardino64.3%50.6%
San Jose-Sunnyvale59.8%26.6%
Source: ATTOM Data Solutions
Check affordability across the U.S.
Ron Trujillo

Ron Trujillo

Longtime business journalist-turned-communications executive who enjoys reporting on residential real estate in his spare time.

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