By S.E. Slack
Renting right now but looking to buy a home? Real estate firm Zillow tackled this question with a few more for renters considering jumping into home ownership. Depending on the housing market in your area, renting could very well be the way to go for two years or so.
Zillow says the buy-rent breakeven algorithm is detailed and comprehensive with many moving parts, there are really only a few key elements that significantly drive the results. First is the price-to-rent ratio. This ratio measures how expensive home purchasing is relative to renting by comparing the value of a house with annual rental payments. The higher this value is, the longer it will take rents to exceed the costs of buying.
“The faster home values appreciate,” says Skylar Olson, Zillow economist, “the smaller the net cost of owning in the coming years, and the sooner a homeowner will break even.”
Expected long-term home value appreciation in the Chicago area is projected to be 4.44 percent. Rents will rise about 3.5 percent during the same time frame. Those numbers, says Olson, means that it will take about 2.3 years for renters to be in a breakeven position and ready to purchase a home.
In other parts of the county, it will take less time to reach that Breakeven Horizon. In Winston Salem, N.C., rental inflation is expected to jump ahead of home value appreciation during the next year. In the long-term, rents will stay steadily at 1 percent below home value appreciation. This creates a market where the costs of homeownership will be quite attractive to renters within two years.
Skylar Olson, economist with Zillow research, says that renters who save while they wait for a dream home are putting themselves into a good position to buy quickly and easily when the time comes.
“The breakeven horizon shrinks considerably if you save that down payment or those property taxes you avoid by renting in a simple savings account or with a CD,” she says.
If it’s not quite the time to buy in your area, the chances are good that it will be soon. So start saving and start paying more attention to the housing market!