Since the bottom of the housing market was felt nationwide in 2012, buying a home has been considered a far better investment than renting. Home prices in many markets were rising, but not necessarily above their pre-recession peaks. Meanwhile, interest rates remained appealingly low, keeping average monthly mortgage payments below the average comparable rents. At that point, it became a matter of saving enough for a down payment. There was no question as to whether it was more financially advantageous to spend less per month on something you own versus shelling out more on something you don’t.

Now, things are changing. As of September 12, the average 30-year fixed mortgage rate is 4.78 percent – an increase from 4.71 percent the week prior. Factor in rapidly rising home prices, largely due to constrained supply with hefty home buyer demand, and renting starts to gain an edge. According to realtor.com, the cost of homeownership in the U.S. jumped 14 percent in the last year alone, which is over three times the rental cost increase. So, does buying a home in today’s market still make sense?

The answer is yes – if you live in Chicago.

According to Florida Atlantic University’s Beracha, Hardin & Johnson’s latest Buy vs. Rent Index, renting is now a better bargain than buying for the first time since 2010 in 16 of 23 major metropolitan markets. Residents of Atlanta, Dallas, Denver, Houston, Los Angeles, Miami, San Francisco, and Seattle are now better off leasing and putting the monthly difference saved into another wealth-building vehicle – at least until the housing market cools off again.

For Chicagoans, however, buying is still a better deal than renting. In fact, most of the markets where homeownership makes more financial sense are located in the Midwest and Northeast. 

Rent vs. buy Chicago

According to RentCafé, the average rent in the city of Chicago is $1,808 per month. River North is the most expensive ($2,463) followed by River West ($2,424), Streeterville ($2,414), the Loop ($2,396) and Lakeshore East ($2,395).

Take for example you plan to rent the average two-bedroom apartment in River North for $3,414 per month. To buy a condo in River North between 1,000 and 2,000 square feet (typically the range for a two-bedroom layout), the median price is $487,500 based on August 2018 sales.

Assume you decide to purchase that condo in River North for $487,500 with a down payment of 20 percent, or $97,500, and lock in the current average 30-year mortgage rate of 4.78 percent. With a 2 percent property tax rate, $800 in annual homeowner’s insurance fees and HOA dues of $400 per month, you’re looking at a monthly payment of $3,321. Not only are you saving roughly $100 per month, but you’re building equity for the long term.

Keep in mind, the home you choose will make your monthly payment fluctuate. If you want to purchase a condo in a building with shared amenities and door staff, your HOA dues might go up a few hundred or more. In River North and other downtown neighborhoods, condos are the norm, which makes factoring potential HOA dues into your rent vs. buy calculation a must. Overall, HOA fees vary drastically depending on your unit size, the building’s age, shared maintenance, insurance, and property management costs. Most multi-unit buildings in Chicago include water, trash, and sewer as part of your overall payment. Plus, some mid and high-rise buildings offer a shared rate for additional utilities like cable and internet. HOA dues tend to be highest in older high-rises, particularly those along the lake, which can sometimes make renting seem more affordable on paper.

Overall, the median price for a home in Chicago is $285,500. Without HOA dues, you’re looking at a monthly payment of $1,727 per month compared to the average overall rent of $1,808 per month. Depending on your desired property’s HOA set up, you may wind up spending a bit more than you would while renting. But, you also have to consider the fact that your monthly payment is now funding an investment, not a lease. An additional $20 or $30 per month isn’t much when you recoup a portion of all your money spent back in three to five years.

Plus, having the ability to increase your home’s value with upgrades and potentially profit down the line is an opportunity in itself. The emotional benefits, such as putting down roots and making community ties, are enough to make buying a home more tempting regardless of minor cost disparities.

If you can afford the down payment and are smart with your monthly payment forecast, buying a home in Chicago is usually the smarter financial move. Since everyone’s situation differs, it’s important to sit down with an agent to discuss the initial steps of buying a home and how to get in touch with a lender to determine your buying power. Contact Z Chicago today to schedule your free, no obligation Chicago home buying consultation.