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.
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?