Renting or purchasing a home: Which is the better deal today? In most areas, buying is more cost-effective, according to the results of a recent study conducted by real estate listing site Zillow.
While the upfront costs of buying may be steeper, the break-even point (when ownership costs, such as taxes, fees and earnest money, match the costs of renting) is three years or less in more than 75 percent of the 200 metro areas and 7,500 cities analyzed by Zillow. That includes large markets like Chicago, Denver, Las Vegas, St. Louis, Miami, Phoenix, Detroit, Dallas, Baltimore and Minneapolis.
Renting still appears to be the better bargain in certain areas, however, including Honolulu, San Francisco and San Jose, Calif.
Zillow’s survey compared rental costs to all major homeownership costs, including down payments, closing fees, mortgage payments, utilities, maintenance costs and property taxes. The data also factored in estimated home price appreciation and rent increases along with inflation and tax deductions.
“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,” says Stan Humphries, Zillow’s chief economist.
Christy Budnik, broker with Prudential Network Realty, Jacksonville, Fla., says buying today is appealing because of low interest rates.
Additionally, rental rates have escalated in many markets due to lack of rental inventory. Available rentals have declined because of an increase in the number of renters over the last five years, largely due to credit issues resulting from job loss, short sales and foreclosures.
“Buying is a better deal,” Budnik says, “but the buyer must be credit worthy, intend to remain in the home for at least three years, and be selective in working with a Realtor who can show them homes in areas of high growth and with low days on the market and high list-to-sell ratios.”
An ideal renter, on the other hand, is someone who has credit issues and is “just beginning their career and doesn’t have the savings built up yet or does not feel that their job will stick,” Budnik says.
— Erik J. Martin
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