The Austin metropolitan area is one of the fastest-growing places in the world, and it's probably not a surprise to you that the cost of living mirrors its popularity.

Buying a house within city limits will set you back approximately $550,000 as of June, while renting a one-bedroom apartment costs an average $1,667 per month in rent.

Although it is typically more affordable to rent in the Capital City, which one is more financially lucrative?

Affordable vs. financially favorable

You've heard the phrase "you've got to spend money to make money," but you have to have money to spend it. No matter if you rent or own, each option comes with financial implications — renters forgo the chance to build equity, while homeowners might forgo the opportunity to invest elsewhere.

Research shows that 95% of Austin's homes are cheaper to rent than buy — akin to cities like New York, Las Vegas, and Phoenix. It's important to note that renting is oftentimes not a deliberate choice, but a financial necessity.

Plus, buying a home in ATX depends on a few factors: income, wealth, and credit. According to the Austin Board of Realtors' Buy vs. Rent Index, homeowners had more than 40 times the median wealth of renters.

The three buyers

Real estate volatility tends to hit hardest for first-time homebuyers. | Graphic courtesy Austin Board of Realtors

The Buy vs. Rent Index found that buying a home tends to generate more wealth than renting by studying three types of buyers: first-time homebuyers, move-up buyers, and luxury buyers. Generating wealth through personal real estate depends on a few things: what type of buyer you are, when you bought the house, and the state of the market when you sell it.

Using length of ownership and the value generated for buyers who purchased a home from 2007-2022, homeownership was more favorable than renting 77.6% of the time for first-time buyers, 90.1% for move-up buyers, and 97.4% for luxury buyers. In order to stay in the green, first-time buyers typically need to retain their home for at least five years.

For buyers that purchased a home in 2023, buying was favored over renting 73.3% of the time for first-time buyers, and 100% for move-up and luxury buyers. If the first-time homeowners were to sell the home by the end of 2023, 2024, 2025, renting would likely be the more financially lucrative decision.

Financial savviness (and timing) is key

Like any big financial moves, profitability varies — based on annual changes in home price, mortgage rates, rent, and return from the S&P 500 — depending on the state of the market.

For example, the S&P 500 saw strong gains, measuring 25.9% to 14.8%, from 2009-2010 during the recovery from the Great Recession, but moderated to 2.1% in 2011.

During that same time frame, home prices turned negative, and turning positive (to 4.5%) in 2012. Rents also turned negative in 2009 at -2.5%, then became a positive 4.5% in 2010, before moderating in 2011 and 2012.

In a more recent example, the S&P 500 saw strong returns to the tune of 18% and 28.5% in 2020 and 2021, before falling sharply down to -18% in 2022. Meanwhile, home prices soared 34.4% higher in 2021, and were still 13.2% higher in 2022.

Is buying a house in your financial plans? Let us know using this survey. incoming