By some measures, it’s more expensive than ever to buy a home in the U.S. But it’s still cheaper than renting — if you can stay in that house for at least six years.
That’s according to a new report from Zillow, which found that owning a median-priced single-family home, valued at $368,720 and with a 5 percent down payment, pays off after 5.9 years compared to paying for a rental with a median rent of $1,951 per month. With a 20 percent down payment, the break even time frame is six years.
At the end of 30 years, the length of a typical mortgage, the homeowner will be in a better financial position than a renter, the report says. For homeowners who put down 20 percent, they will end up with about $735,000 in net wealth. Meanwhile, a renter will see a net loss of $1.15 million. These calculations include total ownership costs over the lifetime of the loan, as well as the renter investing the cash not used for a down payment but also paying rent and insurance during the same period.
Even with just a 5 percent down payment, the homeowner beats the renter, coming out ahead by $553,000, while the renter will lose about $1.32 million.
Still, the report notes how hard it can be to buy a home to begin with, as the upfront costs are high and real. Mortgage rates are also still high, as are housing prices, though the latter are starting to come down in some of the top markets around the country.
The report also notes that there are a lot of factors that it does not take into account, like mortgage interest deductions on taxes and higher investment returns for renters’ cash.
“The bigger point is not that owning is always smart or always dumb,” according to the report. “It is that the answer changes with the market, the mortgage rate, the down payment, the expected path of rents and home values, the return earned on cash kept outside the home, and, above all, how long a household expects to stay.”
It also matters where a homeowner puts down roots. With a 20 percent down payment — which Zillow found is better for homeowners in the long run but takes longer to break even compared to renting — homeowners will break even the fastest in Midwestern and Southern markets like Columbus, Ohio (4.1 years) and Memphis (4.2 years). In markets like these, where construction is booming and the cost of living is lower, making them increasingly attractive to potential buyers.
On the other side of the spectrum, the country’s notoriously expensive coastal markets will take longer for homeowners to break even with renters: with a 20 percent down payment, it would take an owner 23.2 years in San Diego and 19.7 years in Seattle. In New York, it would take 12.5 years.