Buy or Rent? 10 Major Cities
Deciding whether to buy or rent? Here's how the math plays out for some of the nation's biggest cities, according to real estate site Trulia.
Figuring out whether it's better to buy or rent rests on three main factors: where you live, how long you plan to stay and how home prices compare to rents in the area.
Real estate website Trulia analyzed data from 100 major metro areas to help determine that last factor.
While markets vary wildly, prices are so reasonable and interest rates so low that buying is the better option in most of major U.S. cities, said Jed Kolko, Trulia's chief economist. Nationwide, home buyers who remain in their homes for three years will save an average of 19% over renting. If they hold onto their homes for 7 years, the savings advantage grows to 44%.
That means all of the initial transaction costs of buying -- the broker's commission, title insurance, legal fees and other closing costs -- will be offset by benefits, like tax write-offs and price appreciation. And those costs will become cheaper than the total costs of renting, which include insurance and agent commissions.
But the math is changing.
Home prices rose 7% year-over-year last month while rents went up only 3.2%, according to Trulia. "Buying is still cheaper than renting but the gap is closing," said Kolko.
San Francisco
Buy or rent?: Rent
After 3 years: Buyers pay 28% more
That keeps the housing market sizzling. The median price of homes sold during the last three months of 2012 was about $700,000, according to the National Association of Home Builders (NAHB).
While rents are no bargain either, it still takes at least five years before buyers can start reaping the financial benefits of homeownership, Trulia found. At that point, homeowners realize about a 5% savings over renting. After seven years, that savings advantage climbs to 19%,
New York
Buy or rent?: Rent
After 3 years: Buyers pay 11% more
This is the closest New York has come to being a buyers' market
in years. But for most city dwellers, the proposition only makes sense
if they have a lot of cash to put down upfront and are willing to stay
in their home for five years or more.
In the heart of the city, home prices are still stratospheric. A
modest two-bedroom apartment in Manhattan, for example, can easily cost
$850,000.
And while rents are among the highest in the nation, it's still
cheaper to pay a landlord than a mortgage. During the first three years
of owning a home, buyers will shell out an average of 11% more than
renters, according to Trulia.
After five years, the numbers turn in a buyer's favor. That's
when they start realizing an average 15% savings over renting, says
Trulia.
Those willing to look further afield, say in Connecticut or New
Jersey, will find many homes that sell for well below city prices.
During the last three months of 2012, the median price of homes in the
greater metro area was a much more reasonable $450,000.
Los Angeles
Buy or rent?: Buy
After 3 years:
Buyers save 3%
The buy or rent debate in Los Angeles is a closer call than in
most major markets. Buyers who stay in their homes three years have a
negligible savings advantage over renters, according to Trulia.
A lot has to do with where they live. Home prices vary greatly
around the Los Angeles metro area with values on the fashionable
Westside -- including pricey Santa Monica, Brentwood and Beverly Hills
-- as much as four of five times those of less in-demand, inland areas.
Like all other markets, the payoff for buyers becomes more
pronounced with time. After seven years, buyers will save 35% compared
with renting, Trulia estimated.
Boston
Buy or rent?: Buy
After 3 years: Buyers save 10%
After 3 years: Buyers save 10%
Rents in Beantown are among the highest in the country, thanks to a limited supply of housing for renters.
Besides a constant influx of students to the area's colleges and universities, the growing tech and biotech sectors have attracted a lot of well-paid workers to the area. That has the vacancy rate in town at just 3%.
The sky-high rents have made the decision to buy in Boston a no-brainer,
said Trulia's Kolko. Even after just a three-year stay, buyers save an
average of 10% over renters. After seven years, that savings advantage
soars to 40%, according to Trulia's data.
Washington D.C.
Buy or rent?: Buy
After 3 years: Buyers save 12%
Washington D.C.'s population has soared over the
past decade. And to accommodate that growth, the housing market has
expanded into the one-time farmlands of Maryland and Virginia, where lot
prices are much cheaper.
That has helped keep a lid on home prices in the hot D.C. market.
During the last three months of 2012, the median price for homes in the
area was just over $300,000, less than half the amount you'd pay in
other major metro areas, like San Francisco
Local rents, however, have risen as a steady supply of government
jobs has attracted many young workers. Over the course of just three
years, homebuyers can save 12% compared to renters, Trulia found, and
41% over seven years.
Seattle
Buy or rent?: Buy
After 3 years: Buyers save 14%
Seattle's land comes at a premium: The area's residential
communities are hemmed in by the Olympic Mountains and Cascade Range, as
well as the Puget Sound.
And the area's strong economy -- helped by a slew of profitable
tech outfits such as Microsoft and Amazon.com -- keeps workers flocking
to the area.
As a result home prices, at a median of $310,000, are more than
60% higher than the national median of $188,000, according to NAHB,
The cost of renting in the area is just slightly higher than the
national average. Even so, with interest rates so low and home prices
forecast to rise, buying is the better option even for those planning
just a three-year stay. They should save 14% compared with renting.
After five years, that saving advantage rises to 34% and to 42% after
seven.
Chicago
Buy or rent?: Buy
After 3 years: Buyers save 33%
Like many old Midwestern towns, Chicago's growth has stagnated over the past decade.
Tepid demand for housing has kept values reasonable, with the median home price in the area at just $170,000.
Rental costs, however, are comparatively high, at nearly $1,600 a
month. That means a prospective buyer would need to have a very short
time horizon and a bad credit history for it to make more sense to rent.
After only three years, a homeowner would pay 33% less in housing
costs than a renter and 50% less after seven years, according to
Trulia.
Houston
Buy or rent?: Buy
After 3 years: Buyers save 33%
The largest city in the Lone Star State is growing at a fast
clip. But luckily for home buyers, there's still plenty of land to build
on, keeping home prices low.
Given Houston's sprawling nature, businesses are less centralized
and commuters don't need to pay a premium to live close to downtown.
In addition, the state's business-friendly regulations keep building
costs low.
All that means home prices remain reasonable, a median of $164,000 in late 2012, according to the NAHB.
Buying is better under nearly all circumstances. After three
years, the savings is already 33% and after seven years that savings
soars to 51%, according to Trulia.
Atlanta
Buy or rent?: Buy
After 3 years: Buyers save 38%
Home prices have fallen dramatically in Atlanta, as foreclosures continue to come onto the market.
The median home price in the metro area is a mere $130,000,
according to NAHB. And while renting is pretty cheap too, buying is
still the better bet.
Even a buyer staying three years would see a savings of 38% over renting.
Detroit
Buy or rent?: Buy
After 3 years: Buyers save 62%
Anyone who wants to live in Detroit for awhile should find the neighborhood they like and start visiting some open houses.
Home prices in Motor City are about half what they were back in
2004. The median price for homes sold during the last quarter of 2012
was just $80,000, less than a fully-loaded Cadillac Escalade.
Even buyers who sell after three years, would save about 62% more than renters on housing costs, according to Trulia.
Yet, Detroit definitely has some downsides: The city has been
emptying out. That has left a housing stock of numerous homes to chose
from, many in bad shape, but all cheaper than almost everything else in
the country.
By Les Christie
Source:- Trulia / CNN Money
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