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The Real Deal Los Angeles

LA’s “breakeven horizon” among highest in nation

It takes over four years for buying to become more cost-effective than renting: report
By Gabrielle Paluch | February 03, 2017 05:00PM

Rent vs. buy (via shouldiretireyet.com)

Buying, as opposed to renting, is getting increasingly expensive –and especially so in Los Angeles.

It took over four years and two months of homeownership for buying to become more cost-effective than renting in Los Angeles, based on 2016 home price data analyzed in Zillow’s Breakeven Horizon study. It took one month longer in 2016 than it did in 2015, according to the report.

The quarterly study, which estimates the number of years it takes for the accumulated costs of renting a home to exceed the costs of buying a home, found L.A. to have the third-longest waiting period, behind only San Jose and San Francisco.

The national average time for buyers to break even with renters was just under two years in 2016. That’s three weeks longer than it took in 2015.

By comparison, New York and Northern New Jersey clocked in at two years and six months. Buyers in the South and Midwest break even the fastest, with Indianapolis at one year and four months.

The lengthening breakeven horizon reflects a slowdown in home value growth. When equity accumulates quickly, it helps offset the large upfront costs of buying the home.

“As home value appreciation moderates, it will take longer to break even than in past years,” Dr. Svenja Gudell, Zillow’s chief economist, said in a statement.

U.S. home value growth accelerated at the end of 2016, ending the year at a 6.8 percent, but in pricier markets, where breakeven horizons are lengthening significantly, this did not hold true. At the same time, rent growth slowed, only increasing by 1.5 percent annually. These shifting dynamics can make the question of whether to buy or rent less clear in many markets.