SEATTLE, Feb. 4, 2016 /PRNewswire/ -- Home buyers in
Boston, New York, and Washington, D.C. have to stay in a home for at
least three years to break even on a home purchase, and buyers in
the Bay Area would have to stay nearly that long to make buying
financially advantageous, according to Zillow's Breakeven
Horizoni analysis for the fourth quarter of 2015.
Those under 35 stay employed at the same place for an average of
three yearsii, so buying may not make sense for them,
from a financial standpoint, even if paying a mortgage would be
more affordable.
In general, Americans can break even on a home purchase in less
than two years in 70 percent of U.S. metros, thanks to low interest
rates, healthy home value forecasts, and the relatively fast pace
of rents in recent years.
The Breakeven Horizon is featured in the paperback edition of
Zillow Talk: Rewriting the Rules of Real Estate (Grand
Central Publishing, Jan. 26), as one
of the major data points to consider when deciding whether to rent
or buy. On average in the U.S., you don't need to plan on living in
a home for even two years to make purchasing the home more
financially advantageous than renting it over the same time period.
Among large housing markets, the Breakeven Horizon is longest in
Washington, D.C. – 4.5 years – and
shortest in Dallas – 1.3
years.
Around the country over the last year, the Breakeven Horizon
quickened in most of the Midwest and Southeast as well as in the
Northeast corridor from New York
to Boston. The Horizon stretched
longer in Florida, Northern California, and in the Northeast from
Virginia Beach to Philadelphia,
but it remained clear that financially, it's still a better deal to
buy a home than rent it, assuming you're planning to stay in the
home for at least a couple years.
However the decision to buy may not be so simple for millennials
– whose first jobs often take them to job centers with relatively
high Breakeven Horizons. Boston,
one of the nation's youngest cities, has a Breakeven Horizon of
just over three years. San
Francisco's Breakeven Horizon is 2.9 years, up from 2.6
years in the fourth quarter of 2014. Both markets are attracting
young people following jobs, and many of those remain renters
despite record-high rental costs.
"Even with record-high rents in job centers like San Jose, Boston and Washington, D.C., putting off a home purchase
might be the best financial decision for a young person who has
saved enough for a down payment, depending on how long they intend
to stay in their jobs and homes," said Zillow Chief Economist
Svenja Gudell. "Young workers face a
lot of hurdles on the way to homeownership, including saving for a
down payment in the first place and deciding where and when to
settle down. The latest Breakeven Horizon gives young people
another data point to consider when they're making this important
financial decision."
In general, rents are flattening across the country and expected
to continue to stabilize, a factor that could lengthen the
Breakeven Horizon as homes continue to appreciate. Condominiums – a
common choice for young home buyers in urban neighborhoods – have a
longer Breakeven Horizon because of condo association fees.
Metro Area
|
Q4 2015 Breakeven
Horizon (years)
|
Q4 2014 Breakeven
Horizon (years)
|
Zillow Rent Index, Q4
2015
|
United
States
|
1.9
|
1.9
|
$1,381
|
Washington,
D.C.
|
4.5
|
4.2
|
$2,107
|
Los Angeles,
CA
|
4.1
|
5.1
|
$2,491
|
San Diego,
CA
|
3.4
|
3.8
|
$2,316
|
San Jose,
CA
|
3.2
|
2.7
|
$3,431
|
New York/ Northern
New Jersey
|
3.1
|
3.4
|
$2,384
|
Boston, MA
|
3.1
|
3.4
|
$2,247
|
Baltimore,
MD
|
3.0
|
2.9
|
$1,714
|
San Francisco,
CA
|
2.9
|
2.6
|
$3,338
|
Philadelphia,
PA
|
2.8
|
2.4
|
$1,558
|
Miami, FL
|
2.5
|
1.7
|
$1,822
|
Phoenix,
AZ
|
2.3
|
2.3
|
$1,249
|
Minneapolis,
MN
|
2.2
|
2.2
|
$1,500
|
Chicago,
IL
|
2.1
|
2.2
|
$1,633
|
Portland,
OR
|
2.1
|
2.0
|
$1,689
|
Sacramento,
CA
|
2.1
|
2.2
|
$1,599
|
Tampa, FL
|
1.9
|
1.5
|
$1,296
|
Orlando,
FL
|
1.9
|
1.6
|
$1,343
|
Seattle,
WA
|
1.9
|
1.9
|
$1,931
|
Austin, TX
|
1.9
|
2.1
|
$1,683
|
Riverside,
CA
|
1.8
|
1.5
|
$1,691
|
Pittsburgh,
PA
|
1.8
|
1.6
|
$1,090
|
Charlotte,
NC
|
1.7
|
2.0
|
$1,221
|
St. Louis,
MO
|
1.7
|
1.6
|
$1,123
|
Denver, CO
|
1.7
|
1.6
|
$1,952
|
Las Vegas,
NV
|
1.7
|
1.5
|
$1,212
|
Columbus,
OH
|
1.7
|
2.0
|
$1,271
|
Cincinnati,
OH
|
1.6
|
1.7
|
$1,225
|
Cleveland,
OH
|
1.5
|
1.8
|
$1,124
|
San Antonio,
TX
|
1.5
|
1.6
|
$1,301
|
Kansas City,
MO
|
1.5
|
1.6
|
$1,199
|
Houston,
TX
|
1.5
|
1.5
|
$1,579
|
Atlanta,
GA
|
1.4
|
1.5
|
$1,274
|
Detroit,
MI
|
1.4
|
1.3
|
$1,132
|
Indianapolis,
IN
|
1.3
|
1.3
|
$1,181
|
Dallas, TX
|
1.3
|
1.2
|
$1,500
|
About Zillow
Zillow® is the leading real estate and rental marketplace dedicated
to empowering consumers with data, inspiration and knowledge around
the place they call home, and connecting them with the best local
professionals who can help. In addition, Zillow operates an
industry-leading economics and analytics bureau led by Zillow's
Chief Economist Dr. Svenja Gudell.
Dr. Gudell and her team of economists and data analysts produce
extensive housing data and research covering more than 450 markets
at Zillow Real Estate Research. Zillow also sponsors the quarterly
Zillow Home Price Expectations Survey, which asks more than 100
leading economists, real estate experts and investment and market
strategists to predict the path of the Zillow Home Value Index over
the next five years. Zillow also sponsors the biannual Zillow
Housing Confidence Index (ZHCI) which measures consumer confidence
in local housing markets, both currently and over time. Launched in
2006, Zillow is owned and operated by Zillow Group (NASDAQ: Z and
ZG), and headquartered in Seattle.
Zillow is a registered trademark of Zillow, Inc.
i The breakeven horizon is the number of years after
which buying is more financially advantageous than renting (at the
precise breakeven horizon one can be indifferent between buying and
renting). We computed the breakeven horizon for each household by
comparing the costs of owning a home versus renting a
home at the end of each year for 30 years (assuming the house
is purchased using a 30 year fixed mortgage). Our buy versus rent
analysis incorporated all possible costs incurred when purchasing a
home as well as those incurred when renting a home to make the
comparison between these costs as realistic as possible. The full
methodology can be found here:
http://www.zillow.com/research/rent-vs-buy-breakeven-horizon-analysis-methodology-updated-3549/
ii According to the U.S. Bureau of Labor Statistics, the
median years of tenure with current employer for employed
25-34-year-old workers was 3 years in 2014.
http://www.bls.gov/news.release/tenure.t01.htm
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/buying-beats-renting-in-less-than-two-years-but-millennials-still-have-reason-to-rent-300215066.html
SOURCE Zillow