Rent or own – which is better?

“To compare the monthly cost of housing, we assume a hypothetical potential first-time home buyer either continues renting a residence at the median monthly rent in their market or purchases a home,” the study reads. “The cost to rent is simply the amount of rent paid every month. The cost of owning includes taxes, repairs, homeowner’s insurance and the monthly mortgage principal and interest payments. Our analysis assumes the hypothetical first-time home buyer is taking out a 30-year, fixed-rate mortgage, with a 5% down payment on a home at the 25th%ile sale price in their market in the fourth quarter of 2021. We also factor in the potential benefit of equity accumulation via house price appreciation.”

As a hypothetical, analysts used the example of a first-time homebuyer in Houston purchasing the 25th%ile home at $245,000 in the fourth quarter of last year. While the average 30-year, fixed-rate mortgage was 3.1% in the fourth quarter, mortgage rates have soared over the last few months, analysts noted. To align with current economic conditions more closely, this analysis assumes the home buyer purchases the home with a mortgage rate of 5%. In this example, the home buyer pays $1,250 monthly in principal and interest and another $760 in taxes, repairs, private mortgage insurance, and homeowner’s insurance costs.

Read next: Homebuyers favor 30-year loans as they tire of renting

The upshot: The total monthly cost of ownership adds up to $2,010, while the median monthly rent in the home buyers’ market is $1,260, $750 less than the monthly cost of ownership. In this scenario, it would only require house price appreciation of 3.7%, or an additional $9,000 in equity, over the following year for the cost of homeownership to break even with the cost of renting.

The First American study showed the five cities with the lowest and highest house price appreciation tipping points: