College Times

For renters, buying a home pays off after 3 years o

By Alejandro Lazo, Los Angeles Times

Published: Thursday, August 9, 2012

Updated: Thursday, August 9, 2012


LOS ANGELES - Real estate website Zillow has a provocative data point for
every renter thinking about buying these days: That move pays off after just
three years on average nationwide.

The company, which lists for-sale and for-rent information on its site, has
released a new analysis of what it calls the "break-even horizon," comparing
what it would cost to buy or rent the same home in a number of U.S. markets
over time.

The rent-or-buy calculus varies widely depending on where you live.

In the combined Los Angeles and Orange counties, for example, the magic number
is 4.3 years, assuming the buyer has made a 20 percent down payment. Buying
wins out after only 1.6 year in the desert community of Banning, Calif. But
Newport Beach, Calif., residents must wait 14 years for buying to make more
financial sense than renting.

The analysis takes into account a host of factors potential buyers should
think about when considering the leap, including the down payment, mortgage
and rental payments, buying and selling costs, property taxes, utilities,
maintenance costs and tax deductions. The analysis adjusts for inflation and
forecasts home value and rental price appreciation.

Zillow senior economist Svenja Gudell said the data should help homeowners get
a rough and immediate sense of whether buying makes sense in a particular area
in relation to their financial situation.

"For a home buyer out there, it is really tough to get a good grip on the
buy-versus-rent decision," Gudell said. Although buying a home is a deeply
personal decision, she said, the analysis gives consumers "a sense for, 'Am I
ready to make this decision?' "

The new take on the classic rent-versus-buy debate comes at a tenuous moment
for the housing market. Many analysts believe that a housing bottom has been
reached but don't expect a return to the heady days of the real estate bubble.

There is already some concern about the strength of the recovery, with home
sales slowing in June as inventory remained tight and buyers paid higher

At the same time, rents are rising, housing affordability is at record levels,
and mortgage interest rates remain very low. These factors are prompting many
renters to consider homeownership.

Stuart Gabriel, director of the Ziman Center for Real Estate at the University
of California-Los Angeles, noted that the main lesson from the subprime
mortgage debacle and the housing bust was that homeownership shouldn't be
pushed at all costs. Federal policy has been adjusted to support this new
point of view.

"One of the things we have learned in recent years is, obviously, house prices
don't always go up, and even over the very long term in certain markets,
homeownership may only offer a minimal return," Gabriel said.

"What we have all learned is to treat homeownership as a bit of a dangerous
animal. You know it's not always good, and it's not good for everyone."

Things to consider when buying, particularly in a slowly appreciating market,
include how mobile you will be, your financial situation, marital status,
career goals and personality, Gabriel said.

Richard Green, director of the Lusk Center for Real Estate at the University
of Southern California, added that in many regions buying has become
increasingly attractive compared with renting. There are also non-financial
reasons for buying.

"I can enjoy living in this house for the rest of my life, and nobody can
throw me out of it," he said. "You are consuming something, and you have
control over it, and control has some value."


Be the first to comment on this article!

Click here to leave a comment
View full site