Buying a home is a better financial decision than renting for Seattle-area homebuyers intending to stay in their home for at least three years and seven months, according to a first quarter analysis from online real estate marketplace Zillow.
Zillow’s breakeven horizon incorporates all possible costs associated with buying and renting, including upfront payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities and maintenance costs. It then factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates to help calculate the point, in years, at which buying becomes less expensive than renting.
Among the 30 largest metro areas analyzed by Zillow in the first quarter, those with the shortest breakeven horizon were Miami (2 years), Detroit (2 years) and Phoenix (2.1 years). Large metros with the longest breakeven horizon in the first quarter included New York (5.2 years), Boston (4.1 years) and San Jose (3.7 years). Within metro areas, the breakeven horizon will vary in individual counties, cities, neighborhoods and ZIP codes.
For the first time, the breakeven horizon was applied to the ZIP code and neighborhood levels within individual cities. Because neighborhood selection is such a critical part of the home shopping process, the breakeven tool can be more valuable at these smaller geographic levels.
For example, the breakeven horizon for Seattle as a whole is 3.6 years. But at the neighborhood level, the breakeven horizon ranges from a low of 2.3 years to a high of 4.9 years.
The breakeven horizon is primarily impacted by the expected rate of home value appreciation in a given area. In areas where home values are expected to appreciate more quickly in coming years, the time it takes to recoup upfront costs will be lower and thus the breakeven period will be shorter. In areas where home values are expected to rise more slowly, or even fall, the breakeven horizon will be longer.