Trulia released a report today which takes another look at the Rent vs Buy conversation. Trulia analyzed the last 3 months of rental and home purchase data for the 100 largest US metro areas. Trulia concluded that with the current home price averages, low fixed interest rate and how much rent prices have increased in the past year, it’s cheaper to buy than rent is all 100 metros— under certain conditions. In 96 of the 100 areas examined, it’s still cheaper to buy even with the least desirable scenario Trulia used for their calculations.
There was certain criteria Trulia included in their analysis:
1) Trulia looked at both rentals and homes for sale listed on their site for June, July and August 2012. They then calculated how much the rental homes would probably sell for, and conversely they estimated how much homes for sale would rent for. The goal of calculating this data was for Trulia to be able to create a “direct apples-to-apples comparison.”
2) Trulia calculated the total cost of both renting a home and owning a home over a 7 year period, including the consideration of tying up your money in a down payment.
3) Trulia then analyzed different scenarios regarding the costs of renting versus buying. They changed up the mortgage rate, the income tax bracket for tax deductions, and time period of renting/owning the home.
In all 100 metros, it was cheaper to rent than buy under the best case scenario Trulia used in their calculations (20% down payment, 30-year fixed mortgage rate at 3.5%, buyer at 25% federal tax bracket and owning the home for at least 7 years). The report discusses how influential each of these elements were in determining the cost percentage between renting versus buying. For example, when Trulia compared the data of locking in at a 4.5% fixed mortgage, not itemizing your tax return and only staying in the home for 5 years, buying was actually more expensive than renting in 4 of the metro areas!
So, if buying a home is a much better deal for all these areas– why aren’t more people purchasing homes? The down payment is the largest hurdle for home buyers, according to the Trulia report. If buying a home is a goal of yours, speaking with a real estate broker will give you a better idea of how to deal with the down payment hurdle. The real estate broker can help answer the questions you have on how to make your dream of owning a home a reality.
You can read the full Trulia report here. The report is accompanied by an interactive infographic based on the data Trulia calculated for each of the largest US metro areas.