Buying has (almost) never looked so good

December 7, 2016 | By

Home prices are up, but buying still makes more financial sense than renting, according to a recent report from real estate website Trulia.

In fact, buying is actually a slightly better deal this year than last year. Assuming you are staying put for seven years and putting 20 percent down, buying is currently 37.7 percent cheaper than renting when comparing median monthly costs. That’s up just a hair from 37.2 percent in 2015.

Location, Location

The exact savings vary with location, but the basic trend holds across all of the United States’ 100 largest metropolitan areas, with the range running from a 53.2 percent discount for buyers in Miami and West Palm Beach, Florida, to a 17.4 percent discount in Honolulu, Hawaii.

To calculate median rental costs, Trulia takes into account expected price and rent appreciation plus projected inflation. To calculate homeownership, Trulia considers mortgage payments, maintenance, insurance, and taxes. Trulia also factors in one-time costs and proceeds, such as closing costs, down payment, sale proceeds, and security deposits.

Read more: 3 lifestyle hacks to help you start saving for a down payment

Sunshine State

Generally speaking, Florida is particularly favorable to homebuyers, with three cities among Trulia’s top four in terms of the spread between owning and renting.

In addition to the aforementioned Miami and West Palm Beach, Fort Lauderdale also offers buyers a healthy discount of 52.9 percent, good for a tie with Houston, Texas for second place.

More broadly, the South is the best place for buyers looking for a bargain. Eight of the top ten cities for buyers are located in the region. At the opposite end of the spectrum, California buyers are less fortunate. Of the ten markets with the lowest buyer discount, five — San Jose, San Francisco, Sacramento, Oakland, and Ventura County — are located in the Golden State.

Both rising prices and rising mortgage interest rates could change these calculations, notes Trulia’s chief economist and the report’s author Ralph McLaughlin. Although, he adds, at this point in time, an adjustment in rent-versus-buy calculations is most likely to come from price increases.

Price Increases

In fact, while mortgage rates have fallen significantly in the last year, from 3.9 percent to 3.7 percent, buying has become only a slightly better deal than renting over the same period. This, McLaughlin notes, is because of the concurrent jump in house prices, which increased almost twice as much as rents, 5.9 percent compared to 3.5 percent.

Read more: Two charts that show the realities facing homeowners and renters

Nonetheless, the report notes, the market currently favors buyers more than at any time since 2012.

That said, not everyone is taking advantage of these favorable circumstances. According to real estate website Zillow’s most recent report on consumer housing trends, “renters make up a larger group of the U.S. population than at any time in the last 50 years.” Numbers released in October by the U.S. Census Bureau showed that in the third quarter of 2016 homeownership rose slightly to 63.5 percent, just up from a 51-year low, the Zillow report notes.

Would-be buyers still have time on their side, though, Trulia’s McLaughlin suggests. While dramatic jumps in interest rates or home prices could tilt the equation in favor of renters, neither, he writes, are likely scenarios in the near term.

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