Among the 35 largest metro areas analyzed by Zillow in the first quarter, those with the shortest breakeven horizon were Riverside at less than one year, Orlando at one year, Tampa at 1.1 years and Miami-Fort Lauderdale at 1.2 years.
Large metros with the longest breakeven horizon included Washington DC at 4.2 years, Boston at four years, Phoenix at 3.3 years, San Diego at 3.2 years and Minneapolis and Baltimore both at 3.1 years.
Because conditions for buyers and renters can vary dramatically even within cities themselves, Zillow produces breakeven horizons down to the neighbourhood level in order to give potential buyers and renters the most insight into local conditions where they're considering living.
For example, the breakeven horizon for the city of San Francisco is 2.8 years, but home shoppers who purchase in the Bayview neighbourhood will break even after 1.4 years, while those who buy in Presidio Heights will need to stay in their home 11.7 years for buying to be a better financial decision.
‘Rents keep rising, and mortgage interest rates remain very low, which is helping to skew the rent vs. buy decision toward buying for those who can afford it. Many renters may ask themselves why renew a lease, when you can break even on the same home in less time in many areas,’ said Zillow chief economist Stan Humphries.
‘However, some renters still have to overcome significant hurdles before they can pull the trigger on homeownership. For those renters who can't qualify for a mortgage or aren't able to save enough for a down payment on a house, renting can be a more flexible, and often far less frustrating option,’ he added.
Zillow's breakeven horizon incorporates all costs associated with buying and renting, including upfront payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities, maintenance, and renovation costs.
It also considers the different asset streams available to buyers and renters. For buyers, the home equity grows. Alternatively, renters can invest some of the money they would spent on a home purchase and earn interest. It then factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates.
