Owning a home in the Bay Area now costs twice as much renting

Owning a home in the Bay Area now costs more than twice as much as renting one, the largest disparity of any major population center in the country, as homeownership stretches even further out of reach for many local residents.

San Jose, San Francisco and Oakland tallied the biggest cost differences between renting and owning among U.S. cities, according to a new report by real estate listing site Redfin.

In San Jose, the monthly mortgage payment for a typical newly purchased home is an estimated $11,049, a 165% premium on the median rental price of $4,176, the report found. In San Francisco, the discrepancy is 139%. It’s 99% in Oakland.

In much of the rest of the country, a typical home costs 25% more to buy than rent.

Redfin compared mortgage and rental costs for single-family homes, condos and townhouses in the 50 most populous U.S. metros. The report did not analyze apartment rental prices.

While some people choose to rent — and forgo building home equity — because they don’t plan to stay long-term, others can’t afford a down payment or qualify for a mortgage, a “situation that has become increasingly common due to rising mortgage rates and elevated home prices,” Redfin economist Taylor Marr said in a statement.

Nowhere is that more obvious than in the Bay Area, where deep-pocketed buyers competing for homes amid a severe shortage have sent the median single-family house price soaring to $1.25 million, a 28% jump over the past three years, according to the California Association of Realtors. At the same time, average mortgage rates have doubled to more than 6%, spiking monthly payments by thousands of dollars.

Those rising costs mean that just one in five Bay Area residents can comfortably afford to buy a median-priced, single-family home, according to a recent report by the association. Nationwide, 40% of people can afford a typical home at the national median price of around $371,200.

For one renter in Los Gatos, buying might not be worth it, even if he could afford a home in the Bay Area.

“The barrier to entry is really high, and the money that would be spent to get a home feels like a wasted investment,” said Nicholas, a former tech worker in his early 30s who declined to provide his last name.

In addition to an expensive mortgage and down payment, he’s concerned about property upkeep costs and “other anxieties” that come with homeownership. That includes securing homeowners insurance in the fire-prone Santa Cruz Mountains, which is becoming more of a challenge since State Farm and Allstate, two of the largest providers, recently stopped writing new policies in California due to wildfire concerns.

He’s considered buying a home near Minneapolis, where he grew up and still has family. But he said he would still likely spend most of his time in California as a renter. “A mortgage feels like a bad deal,” he said.

According to Redfin, it’s cheaper to own than to rent in only four major U.S. cities: Detriot (24% less), Philadelphia (7% less), followed by Cleveland (4%) and Houston (1%). Home values in those cities have stagnated compared with the rest of the U.S., Marr said.

After the Bay Area, the cities with the largest gap between homeownership and rental costs are Anaheim (91% more to own), Seattle (88%), Los Angeles (79%) and San Diego (70%).

Additionally, once-affordable cities where scores of remote workers moved during the pandemic now see significant differences in cost. Some of those include Sacramento (54% more), Las Vegas (35%) and Phoenix (25%).