An analysis of the “breakeven horizon” in more than 200 metros and 7,500 cities showed that in more than 75 percent of metros examined, a homeowner would break even after owning a home for three years or less.
Zillow incorporated all possible costs associated with buying and renting, including down payment, mortgage and rental payments, transaction costs, property taxes, utilities, maintenance costs, and tax deductions and opportunity costs. This data was adjusted for inflation and forecasted home value and rental price appreciation.
In some metro areas where home values fell most during the housing recession, homebuyers break even after less than two years of ownership. The Miami-Ft. Lauderdale metro is among the most favorable for buying, with homeowners breaking even after 1.6 years of living in the home.
On the other end of the spectrum, homeowners in San Jose (where home values are among the highest in the country), a buyer must commit to living in their home for 8.3 years before breaking even.
Many metros saw a difference from one community to the next. For example, homeowners in Mill Valley, California, break even after 8.8 years, while those living in the similarly-priced Menlo Park (in the same metro) must commit to owning their home for 14.1 years before breaking even.
“Across most of the country, historic levels of affordability make buying a home a better decision than ever, especially considering rents have risen more than 5 percent over the past year,” said Stan Humphries, Zillow chief economist. “This is the first analysis of metros and cities that presents the buy versus rent decision in an intuitive way by telling consumers how long they must live in the home before buying breaks even with renting financially.”
“It’s much more understandable, and therefore useful, than the abstract notion of a simple ratio of prices to rents. If we want consumers to act on market information, we have to align it with how they think about the issue and make it straight-forward to grasp.”
Metros where the breakeven point is more than five years made up 7 percent of the 224 metros covered in the report and included San Jose, California (8.3 years), Oak Harbor, Washington (7.2 years), and Santa Cruz, California, (7.1 years). A number of metros tied for the shortest breakeven horizon (at 1.6 years): Memphis, Tennessee; Miami-Ft. Lauderdale, Florida; Salisbury, Maryland; and others.
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