Mortgage rates may still be near historic lows, but with home prices rising--up an average 10% over the past year--should you buy now, or are you better off renting?
See related calculator: Should you rent or buy?
While it depends on where you live and how long you plan to stick around, Zillow crunched the numbers (taking into consideration all possible costs associated with both buying and renting, as well as other factors) and found that in most major markets it still makes better financial sense to buy.
“In roughly 60 percent of the metropolitan area we analyzed in our breakeven study, you can break even in less than three years,” says Svenja Gudell, Zillow’s senior economist.
In some markets - like Detroit, Miami and Phoenix, you can make your money back in about two years. In others, like Duluth, Memphis, and Shreveport--less than two years!
Take a city like Cleveland, which has a break-even point of about two and a half years. Trulia says you can spend an average of $500 a month on a mortgage, or spend $1500 a month to rent. Trulia calls that decision a “no brainer.”
The home-ownership rate has fallen in recent years from its 2004 peak, as the number of renters -- and rental prices--have grown. But economists predict that more Americans will choose to buy as the economy continues to strengthen.
First, the total cost of home ownership, beyond your monthly mortgage payment. Plan on 20% down, plus 3-5% more for closing costs. Maintenance will run you an average of one percent of your home’s price, each year. And don’t forget insurance and property taxes.
Then there’s your time horizon. To recoup your expenses and gain value, you’ll have to think of your home as a long-term investment.
Finally, ask yourself if you really want to be a homeowner. Are you the type of person who relishes those weekly trips to the hardware store, or would you rather just call your landlord to come fix your leaky faucet?
See related calculator: How much home can you afford?
In a handful of major markets, renting could make more financial sense. Among them: San Jose, Boston, and you guessed it - New York - where you need to stick around more than five years for the investment to pay off.
Do you plan to buy a new home soon? Or are you happy renting? We want to hear from you! Find me on Twitter @veragibbons and use the hashtag, #costofliving.