Why Buying a Home Trumps Renting

Why Buying a Home Trumps Renting

There are many reasons why purchasing a home beats renting and paying someone else’s mortgage, but chief among them is that purchasing a home pays off in just three years on average. Zillow, a real estate website, recently released a new analysis that they call the “break-even horizon.” This is the comparison of what it costs to buy or rent in the same home. The analysis covers a variety of U.S. markets.

While the rent versus buying equation varies depending on where you live, the consensus for Los Angeles and Orange Counties is that 4.3 years is the point at which a buyer would break-even assuming they put 20% down when they purchased. Out in the desert community of Banning, the span is much shorter, coming in at just 1.6 year. However, in upscale communities like Newport Beach where home prices are much higher, buyers would need to wait 14 years before buying in order to make more financial sense than renting.

Factors in the analysis include mortgage and rental payments, down payment, buying and selling costs, property taxes, utilities, maintenance costs, and tax deductions. Zillow’s equation is forward-thinking though, adjusting for inflation, and forecasting home value and rental price appreciation.

Zillow’s new valuation method comes at a time when rents are on the rise and housing affordability is at record levels in many parts of the country. Incidentally, many renters are considering the benefits of home ownership. Their analysis covered more than 200 metros and 7,500 U.S. cities.

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