According to a first-quarter analysis from online real estate marketplace Zillow, in 64% of U.S. metropolitan areas, buying a home is a better financial decision than renting for those intending to stay in their home for at least three years.
Among the 30 largest metro areas, those with the shortest breakeven horizon were Miami (two years), Detroit (two years) and Phoenix (2.1 years). Large metros with the longest breakeven horizon included New York (5.2 years), Boston (4.1 years) and San Jose (3.7 years).
Zillow's ‘breakeven horizon’ looks at all possible costs associated with buying and renting, including up-front payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities and maintenance costs. It then factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates to help calculate the point, in years, at which buying becomes less expensive than renting.
‘Locally high home value appreciation in many areas, combined with historically low mortgage rates and low home prices relative to recent peaks, has made buying a home a more advantageous financial decision than renting for many would-be buyers,’ says Zillow Chief Economist Dr. Stan Humphries.
‘The decision to buy or rent should always take into account a number of factors, one of which is how long a buyer or renter plans to stay in a property,’ he adds. Even in areas with relatively low breakeven horizons, buyers should resist the temptation to buy and sell properties based only on short-term goals. And renters in these areas should never feel compelled to stretch themselves to buy if it is currently beyond their means.’