REAL ESTATE TRENDS...Buying Beats Renting in Less Than Two Years

Buying Beats Renting in Less Than Two Years, But Millennials Still Have Reason to Rent

For young workers, who change jobs every few years on average, the local Breakeven Horizon is a crucial consideration.

- The U.S. Breakeven Horizon remained 1.9 years, meaning home buyers break even on a home purchase in less than two years in 70 percent of housing markets, compared to renting the same home.

- The Breakeven Horizon in some of the nation's most popular job markets is between two and three years, making it a crucial consideration for millennials, who typically spend about three years at a time with a single employer.

- Among the largest 35 markets, the longest Breakeven Horizon is in Washington, D.C.: 4.5 years. The shortest is in Dallas: 1.3 years.

Feb 4, 2016

SEATTLE, Feb. 4, 2016 /PRNewswire/ -- Home buyers in Boston, New York, and Washington, D.C. have to stay in a home for at least three years to break even on a home purchase, and buyers in the Bay Area would have to stay nearly that long to make buying financially advantageous, according to Zillow's Breakeven Horizoni analysis for the fourth quarter of 2015.

Those under 35 stay employed at the same place for an average of three yearsii, so buying may not make sense for them, from a financial standpoint, even if paying a mortgage would be more affordable.

In general, Americans can break even on a home purchase in less than two years in 70 percent of U.S. metros, thanks to low interest rates, healthy home value forecasts, and the relatively fast pace of rents in recent years.

The Breakeven Horizon is featured in the paperback edition of Zillow Talk: Rewriting the Rules of Real Estate(Grand Central Publishing, Jan. 26), as one of the major data points to consider when deciding whether to rent or buy. On average in the U.S., you don't need to plan on living in a home for even two years to make purchasing the home more financially advantageous than renting it over the same time period. Among large housing markets, the Breakeven Horizon is longest in Washington, D.C. – 4.5 years – and shortest in Dallas – 1.3 years.

Around the country over the last year, the Breakeven Horizon quickened in most of the Midwest and Southeast as well as in the Northeast corridor from New York to Boston. The Horizon stretched longer in Florida, Northern California, and in the Northeast from Virginia Beach to Philadelphia, but it remained clear that financially, it's still a better deal to buy a home than rent it, assuming you're planning to stay in the home for at least a couple years.

However the decision to buy may not be so simple for millennials – whose first jobs often take them to job centers with relatively high Breakeven Horizons. Boston, one of the nation's youngest cities, has a Breakeven Horizon of just over three years. San Francisco's Breakeven Horizon is 2.9 years, up from 2.6 years in the fourth quarter of 2014. Both markets are attracting young people following jobs, and many of those remain renters despite record-high rental costs.

"Even with record-high rents in job centers like San Jose, Boston and Washington, D.C., putting off a home purchase might be the best financial decision for a young person who has saved enough for a down payment, depending on how long they intend to stay in their jobs and homes," said Zillow Chief Economist Svenja Gudell. "Young workers face a lot of hurdles on the way to homeownership, including saving for a down payment in the first place and deciding where and when to settle down. The latest Breakeven Horizon gives young people another data point to consider when they're making this important financial decision."

In general, rents are flattening across the country and expected to continue to stabilize, a factor that could lengthen the Breakeven Horizon as homes continue to appreciate. Condominiums – a common choice for young home buyers in urban neighborhoods – have a longer Breakeven Horizon because of condo association fees.

Metro Area	Q4 2015 Breakeven Horizon (years)	Q4 2014 Breakeven Horizon (years)	Zillow Rent Index, Q4 2015
United States	1.9	1.9	$1,381
Washington, D.C.	4.5	4.2	$2,107
Los Angeles, CA	4.1	5.1	$2,491
San Diego, CA	3.4	3.8	$2,316
San Jose, CA	3.2	2.7	$3,431
New York/ Northern New Jersey	3.1	3.4	$2,384
Boston, MA	3.1	3.4	$2,247
Baltimore, MD	3.0	2.9	$1,714
San Francisco, CA	2.9	2.6	$3,338
Philadelphia, PA	2.8	2.4	$1,558
Miami, FL	2.5	1.7	$1,822
Phoenix, AZ	2.3	2.3	$1,249
Minneapolis, MN	2.2	2.2	$1,500
Chicago, IL	2.1	2.2	$1,633
Portland, OR	2.1	2.0	$1,689
Sacramento, CA	2.1	2.2	$1,599
Tampa, FL	1.9	1.5	$1,296
Orlando, FL	1.9	1.6	$1,343
Seattle, WA	1.9	1.9	$1,931
Austin, TX	1.9	2.1	$1,683
Riverside, CA	1.8	1.5	$1,691
Pittsburgh, PA	1.8	1.6	$1,090
Charlotte, NC	1.7	2.0	$1,221
St. Louis, MO	1.7	1.6	$1,123
Denver, CO	1.7	1.6	$1,952
Las Vegas, NV	1.7	1.5	$1,212
Columbus, OH	1.7	2.0	$1,271
Cincinnati, OH	1.6	1.7	$1,225
Cleveland, OH	1.5	1.8	$1,124
San Antonio, TX	1.5	1.6	$1,301
Kansas City, MO	1.5	1.6	$1,199
Houston, TX	1.5	1.5	$1,579
Atlanta, GA	1.4	1.5	$1,274
Detroit, MI	1.4	1.3	$1,132
Indianapolis, IN	1.3	1.3	$1,181
Dallas, TX	1.3	1.2	$1,500