00:00 Speaker A
While mortgage rates have been trending lower, Americans are not ready to jump into home ownership. Among renters who intend to move within the next year, 59% plan to continue renting. That’s according to a recent Zillow report. But is that the best move? Well, here to examine the housing landscape, we welcome in now Zillow Group Home Trends expert Amanda Pendleton. Amanda, it is good to see you.
00:30 Speaker A
I want to start here, Amanda. You say it now takes the average homeowner seven to nine years for owning to make more financial sense than renting. Let’s stop there. What do you mean by that, Amanda, more financial sense?
00:54 Amanda Pendleton
Yeah, so this is the buy rent break even point, the point at which it does make more financial sense for you to buy than to rent. And that really takes into account a combination of factors. So of course there’s mortgage interest rates, so how much of your monthly payment is going to interest versus principal, and of course, like rent, that just disappears, you’re never seeing that again. And then there’s home value appreciation. And right now, home values are pretty flat and they’re expected to rise at less than 2% year over year by next summer. Uh we also look at rent price growth, so how quickly are rents growing, and then of course opportunity cost. How much could your down payment appreciate if it were invested in the stock market versus in the housing market. and it really is the combination of those factors that makes us say, okay, the break even horizon is so much longer than it was prior to the pandemic.
01:52 Speaker A
Some of the regional differences you point out Amanda are also really interesting. I this struck me. cities like New York or San Francisco, it can now take 15 to 20 years to break even on buying? Did I did I see that right?
02:18 Amanda Pendleton
Yeah, it’s absolutely wild. So you are right. Nationwide, seven to nine years is the break even time horizon for where it makes more sense for you to buy than to rent. But in those really expensive coastal metros, in New York City, in San Francisco, you’re looking at 15 to 20 years of staying in the same place before it makes it more financial beneficial for you to have purchased that home than to rent that home. Now, in more affordable metro areas like a Memphis or a St. Louis, you’re looking at three to four years before you break even on a home. But just for perspective, compare that to prior to the pandemic and the buy rent break even point then was two to three years nationwide. So it was an absolute slam dunk to buy versus to rent, that calculus has really changed.