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Home Buying Pays Off Fast, but Hurdles Remain For Renters

Many U.S. homebuyers can break even in less than two years if they buy a home instead of renting it, but financial barriers and preference are big factors in the decision to continue renting.

- Homebuyers can break even on a home purchase in less than two years in 66 percent of U.S. metro areas, according to the Zillow fourth quarter Breakeven Horizon report.

- Twenty percent of renters say they prefer to rent than buy. More than half (53 percent) say financial limitations keep them from buying.

- The point at which homebuyers can expect to break even on a home purchase - Zillow's Breakeven Horizon - lengthened in many markets in 2014 as home value growth flattened.

Apr 8, 2015

SEATTLE, April 8, 2015 /PRNewswire/ -- Even though buyers in most markets can break even on a home purchase in less than two years,i nearly half of renters in a newly released survey said their credit or finances keep them from buying a home.ii

Of renters surveyed by Zillow®, 16 percent said they can't qualify for a home loan, 18 percent said they can't afford taxes, maintenance and other costs associated with homeownership, and 13 percent said they don't have enough savings for a down payment. About a quarter said they struggle to pay their rent.

According to the survey, 82 percent of renters are long-term renters, and 57 percent are long-term renters who have lived for a long time in the same home.

Just 14 percent of renters said they aren't staying long enough in the same place to buy. 

Zillow's survey sheds light on why some renters are not buying homes, despite historically low interest rates, prices that remain below peak levels in many areas and rising rents. Mortgage math aside, 20 percent of renters said they simply prefer to rent.

"If the buy versus rent decision were about simple math, we'd likely have millions more homebuyers in the market, because the equation is tilted heavily in favor of buying," said Zillow Chief Economist Dr. Stan Humphries. "But no matter what the numbers say, buying a home is a huge commitment. Every day, Americans make decisions to buy or rent based on any number of personal dynamics, including preference, flexibility needs, family factors and, yes, financial considerations. There is no right or wrong choice, and it's important that America's housing market maintains a number of affordable options for renters and buyers, no matter their preferences."

Over the last year, as home-price appreciation has slowed down, the length of time it takes to break even on a home purchase grew slightly in most major metros.  The breakeven analysis looks at how long it takes to come out ahead on a home purchase versus renting the same home, recouping the costs of buying, including taxes and maintenance.

Among the top 35 metro areas in the U.S., Dallas-Fort Worth had the lowest breakeven horizon, at 1.2 years. Indianapolis, Ind. and Detroit were next at 1.3 years. The highest breakeven horizons were in Los Angeles, at 5.1 years, Washington D.C. (4.2 years) and San Diego (3.8 years). The national average is 1.9 years.

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. The horizon also factors in home equity growth for buyers, and, for renters, income earned if they invested the same amount of money into an interest-bearing account. It also factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates.

Metropolitan Area

Zillow Home Value Index (ZHVI)

Zillow Rent Index (ZRI)

Q4 2014 Breakeven Horizon (in years)

Q4 2013 Breakeven Horizon (in years)

United States

$      178,700

$      1,355

1.9

2.0

New York-Northern New Jersey

$      383,300

$      2,348

3.4

2.8

Los Angeles, CA

$      533,700

$      2,475

5.1

1.5

Chicago, IL

$      187,100

$      1,600

2.2

1.7

Dallas-Fort Worth, TX

$      155,700

$      1,449

1.2

1.6

Philadelphia, PA

$      202,800

$      1,554

2.4

2.8

Houston, TX

N/A

$      1,502

1.5

2.1

Washington, DC

$      362,800

$      2,104

4.2

2.8

Miami-Fort Lauderdale, FL

$      212,500

$      1,782

1.7

1.1

Atlanta, GA

$      154,900

$      1,238

1.5

1.1

Boston, MA

$      369,100

$      2,167

3.4

3.0

San Francisco, CA

$      715,800

$      3,088

2.6

1.9

Detroit, MI

$      114,400

$      1,105

1.3

1.2

Riverside, CA

$      285,200

$      1,670

1.5

0.7

Phoenix, AZ

$      203,400

$      1,228

2.3

2.3

Seattle, WA

$      343,900

$      1,839

1.9

1.9

Minneapolis-St Paul, MN

$      211,400

$      1,506

2.2

2.0

San Diego, CA

$      474,100

$      2,310

3.8

1.9

St. Louis, MO

$      132,500

$      1,141

1.6

3.8

Tampa, FL

$      148,600

$      1,272

1.5

1.0

Baltimore, MD

$      244,100

$      1,717

2.9

2.2

Denver, CO

$      289,200

$      1,834

1.6

2.1

Pittsburgh, PA

$      125,300

$      1,137

1.6

1.9

Portland, OR

$      281,400

$      1,592

2.0

2.1

Sacramento, CA

$      335,700

$      1,638

2.2

1.0

San Antonio, TX

N/A

$      1,305

1.6

2.7

Orlando, FL

$      170,100

$      1,311

1.6

0.9

Cincinnati, OH

$      138,000

$      1,220

1.7

2.1

Cleveland, OH

$      119,700

$      1,168

1.8

2.1

Kansas City, MO

N/A

$      1,223

1.6

2.7

Las Vegas, NV

$      187,600

$      1,197

1.5

1.2

San Jose, CA

$      852,800

$      3,202

2.7

2.9

Columbus, OH

$      146,300

$      1,252

2.0

1.9

Charlotte, NC

$      158,900

$      1,242

2.0

2.1

Indianapolis, IN

$      129,100

$      1,195

1.3

2.1

Austin, TX

N/A

$      1,669

2.1

3.0

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. Stan Humphries. In 2015, Dr. Humphries co-wrote and published the New York Times' bestselling "Zillow Talk: The New Rules of Real Estate." Dr. Humphries and his 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 bi-annual 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 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 The data presented in this report are the results of a voluntary online omnibus survey of 1,024 adults age 18 and older, including 370 renters, conducted on behalf of Zillow by ORC International. The survey was conducted March 26-29, 2015. Responses are weighted by age, sex, geographic region, rate and education to ensure a reliable and accurate representation of the U.S. population. All sample surveys and polls may be subject to multiple sources of error, including but not limited to sampling error, coverage error, error associated with nonresponse, error associated with question wording and response options, and post-survey weighting and adjustments.

 

SOURCE Zillow

For further information: Emily Heffter, Zillow, 206-757-2701 or press@zillow.com


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