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Where it's better to rent with a roommate than buy your first home

Melody Hahm
Senior Writer

We equate true independence with buying our first homes. But, you might want to put up with your roommate for a while longer to save money if you’re on the West Coast. It could pay off.

In a new report, Trulia calculates which option makes more sense: renting with a roommate or buying a starter home. While it’s still a better deal to buy than rent solo across all major markets in America, having a roommate is definitely a game-changer in some of the priciest metropolitan areas.

It’s much more affordable to rent with a roommate than splurge on a starter home in the two most expensive housing markets in the U.S. — San Jose and San Francisco. The savings from splitting rent compared to buying are 21.9% and 16.5%, respectively.

Where does it make more sense to rent than buy?

“Percent cheaper to buy than rent” is a positive number when renting is financially advantageous and negative when there is a cost savings from buying.

“With housing costs in the stratosphere in cities like San Francisco, the decision to share costs with another renter makes good financial sense,” writes Trulia Senior Economist Cheryl Young.

On the other end of the spectrum, you’re better off buying than renting with a roommate in Detroit, where you’ll save 57%. You’ll save 52.2% if you buy instead of split rent in West Palm Beach, Florida.

Portland, Oregon, San Diego and Orange County are markets where it just barely makes more sense to buy a starter home than share your digs.

The report assumes that both renters and buyers plan to stay in the same place for seven years and that buyers will  pay a 20% down payment upfront and obtain a 30-year fixed rate mortgage. Trulia also assumes that renters have their choice of any home in the U.S., which isn’t often the case.

Overall, home prices in every major market across the U.S. are rising, but only half of the markets saw rent increase $100 or more since 2016. In fact, 15 metro areas experienced flat or decreased rents.

With one out of five millennials living with a roommate (a 115-year high), it’s clear that millennials are waiting it out to buy a home.

While fall is prime time to be on the hunt for starter homes, potential homebuyers are likely to strike out because of such tight inventory It might make more sense to beg your parents for your old bedroom back or revisit your collegiate lifestyle.

Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.

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