Comparing buying vs. renting? Your state's "breakeven horizon" might be key

Comparing buying vs. renting? Your state's "breakeven horizon" might be key
Balloons not included in your home purchase
Up House Print by xNoxyArt

These days most of us aren't in a position to buy a home in our state. It's all that avocado toast, I tell ya! But if you ARE in a position to consider it, there's this metric called the breakeven horizon that will help you decide if it's financially better to buy than to rent. And it varies widely from state to state.

I recently ran across Zillow's Annual Buy-Rent Breakeven Horizon study which gives you a state-by-state breakdown of the metric. To determine the numbers, Zillow looked at the average home prices in cities and compared it to buying and rental costs. This assumes a 20 percent down payment, a 30-year fixed rate mortgage with a good credit score, property taxes, etc.

Comparing buying vs. renting? Your state's "breakeven horizon" might be key
Zillow's Annual Buy-Rent Breakeven Horizon study

It's something my partner and I have been mulling over for a while. My city of Chicago, for instance, has a 1.99 year breakeven horizon meaning that it'll take about two years of owning a home for it to make more financial sense than renting.

Tons of factors go into the reasoning including population versus available jobs (so places like Silicon Valley where real estate is scarce compared to the number of people working there, the horizon is much longer). It's essentially basic supply and demand.

The longest breakeven points are pretty obvious pricier markets like Los Angeles, Portland, Oregon, San Francisco, and Washington, D.C. While Memphis, Tennessee takes just 1.32 years for owning to financially beat renting. Other low breakeven cities include Orlando, Florida (1.44 years), Birmingham, Alabama (1.39 years), Atlanta, Georgia (1.45 years), and Houston, Texas (1.67 years).

If you're not dead-set on buying, you're in a pricier city, and don't plan to spend a lot of years in your home, it may make more sense to use that down payment in savings and investment gains.

Are you in a low breakeven horizon city? Does that push you towards buying a home or nah?

  1. This is really useful – we're hoping to buy a house in a year or two (right now we're in the "squirrel away everything we can" portion of preparing), and this really helps clarify my thinking on it! We definitely only want to buy a house if we're going to be in it for the long haul, but it's good to know what we can expect in terms of when it will feel like it's paying off to own rather than rent. (Also it's pretty unlikely for us that we'll actually have a 20% down payment…we've resigned ourselves to paying mortgage insurance for the first few years of homeownership. It would be interesting if they did a different version of this including more like a 5% or 10% down payment)

    1 agrees
    • So I thought I posted this under this comment but looks like I didnt:

      Have you looked into first-time homebuyers programs? With some, you don't need a down payment at all, and won't have to pay PMI. One example is NACA. It's a process but you can save money.
      (and by first time homebuyer, usually it means you can't have owned a home in the past 3 years or so)

  2. Hellifino … what's the calculation say about 1) Austin Texas, 2) bought in 1997 at $144,500 with $28,000 down and $116,500 financed, 3) now in year 21 of a 30-year fixed at 3.75%, 4) tax district estimates current market price at $533,000?

  3. I'm just chiming in as a new(ish) homeowner with regrets. I rented until I was 35, and finally bought a home. Even though I had a career in nonprofit work (i.e. modest income!!) I had been able to save a good chunk of money while living pretty high on the hog (great apartment, new car, nice vacations and plenty of designer handbags!). But my husband and I got married and fell for the "you're throwing your money away on rent" myth and bought a modest home. Now all of our savings are gone. We had to replace our furnace and windows. The plumbing went bad and ruined our ceiling and walls. The borough updated the codes and made us replace our sidewalks. They also reassessed the value of our home which increased our taxes $400 a month. From exterminators to landscaping costs, heck, I could go on. We now have to limit our date nights, pack our lunches instead of eat out, and we haven't had a vacation since we moved. We have to budget our month out just to pay for our dog's medicine. Think carefully about buying a house.

    4 agree
  4. Have you looked into first-time homebuyers programs? With some, you don't need a down payment at all, and won't have to pay PMI. One example is NACA. It's a process but you can save money.
    (and by first time homebuyer, usually it means you can't have owned a home in the past 3 years or so)

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