5 Cities Where Buying a Home Pays Off Fastest
Renters typically pay less than homebuyers on a monthly basis — at least in the beginning.
Does that mean everyone should rent instead of buy?
Of course not. But homebuyers do take an upfront loss when they buy -- between the closing costs, higher monthly payments and the opportunity cost of locking up money in their down payment rather than investing it for a higher return.
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Over time, most homeowners make up those initial losses and pull ahead of their renting counterparts, whose housing payments have continued rising while homeowners have locked in their principal and interest payments. Plus, a portion of each monthly mortgage payment goes toward paying down the owner’s principal balance, even as their home appreciates in value.
That raises the question: Where do homeowners hit the “break-even horizon” fastest, compared to renters? According to a recent study by Zillow, homebuyers typically come out ahead after about six years.
Here are cities that most favor homebuyers.
Columbus, Ohio
Break-even time: 3.5 years.
According to Zillow, home prices in Columbus average $248,749, while monthly rents average $1,500. The analysis assumes a 5% down payment and today’s mortgage rates over 6%.
Memphis, Tennessee
Break-even time: 3.7 years.
Like Columbus, it helps that homes are affordable in Memphis, averaging just $147,306. Running the numbers through MortgageCalculator.net, at a 6.5% mortgage rate that puts the principal and interest payment at $884.52, although beware that doesn’t include property taxes, insurance or PMI (private mortgage insurance). Meanwhile, rents average $1,250.
Indianapolis
Break-even time: 3.8 years.
Homes average $232,133 in Indy. That leaves homeowners paying $1,393.88 for principal and interest. Tenants pay a monthly rent of $1,499.
Buffalo, New York
Break-even time: 3.8 years.
Homes cost a similar $241,380 in this Rust Belt city, which means a $1,449.40 principal and interest payment at today’s rates. Renters pay an average of $1,400.
Bear in mind that the average rental unit isn’t necessarily an exact replica of the average owned home. In most markets, owned homes are larger and contain more outdoor space than the average rental unit.
Cincinnati
Break-even time: 4.2 years.
In Cincinnati, the average home costs $252,784, which would put the monthly principal and interest payment at $1,517.88.
Meanwhile, the average rent clocks in at $1,400.
Where Do Buyers Pay the Most vs. Renters?
If affordable, unassuming Midwestern cities favor homebuyers best, it stands to reason that the least affordable coastal metropolises fall at the opposite end of the spectrum.
In some markets, it takes decades for homebuyers to catch up to the savings offered by renting. It takes the full 30 years of paying off a mortgage for the owner to break even in San Francisco, San Jose (California) and even New Orleans.
In San Diego, it takes fully 24.8 years for buyers to break even versus renting. In Seattle, it takes 21.2 years, and in Austin, 20.2 years.
For most residents in these cities, it makes little sense to buy unless you plan to live in the home for the rest of your life.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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