Buying a home is 23% cheaper than renting nationwide for millennials and now is the best time to buy since 2012 when interest rates were a tad lower. But should millennials rent or buy, especially in West Palm Beach?
Analyzing Trulia’s Rent vs. Buy Report, where they have traditionally assumed a 30-year fixed rate mortgage with a 20% down payment for households moving every seven years, buying is 36% cheaper than renting on a national basis, based on September home prices. That’s the best differential since 2012 when it was 38% cheaper to buy than rent. Buying is also cheaper than renting in each of the nation’s 100 largest metros.
However, using the Census’ 2014 American Community Survey and a new Trulia consumer poll, we’ve found that the math is different for young households (ages 25-34), who tend to move every five years (*) and can only afford up to a 10% down payment (**). This edition of Rent vs. Buy crunches the numbers for these prospective home buyers.
To compare the costs of owning and renting for young home buyers, we also assumed a 3.85% mortgage rate on a 30-year fixed-rate loan, itemized federal tax deductions and a 25% tax bracket. With those assumptions, buying is not only 23% cheaper than renting nationally, it is also only cheaper than renting in 98 of the nation’s top 100 markets.
But personal choices aside, here are the current economic conditions that influence today’s market for Millennials deciding whether to rent or buy Real Estate. Nationally, home price growth has outpaced rent growth since 2012. That favors the rent side of the buy vs. rent equation. However, interest rates have returned to near historic lows, now at about 3.85%, after climbing to 4% or higher in 2013 and 2014. In October 2012, rates were about 3.4% for a 30-year-fixed rate mortgage. In that year, young households found that it was 28% cheaper to buy than rent.
Now, should millennials rent or buy?. They should consider that the rent vs. buy gap differs vastly across metros, largely because home prices and rents, property taxes, and home-price appreciation differs by metro. Taking these factors into account, young home buyers in the nation’s 100 markets would find that buying a home ranges from being 5% more expensive than renting in Honolulu to being 46% cheaper to buy a home in Houston.
The only other metro in the top 100 where buying is more expensive than renting a home for young buyers is San Jose, where they’d pay 2% more to buy a home than to rent. Rounding out the top 10 is New York, where buying is now 11% cheaper for younger consumers than renting.
Metric Report as an illustration, should millennials rent or buy in the following years.
The rent vs. buy metric is especially tight for young prospective buyers in California. Of the 10 markets nationwide where buying vs. renting is a tougher call, seven are in the Golden State: San Jose, Orange County, San Francisco, Oakland, Sacramento, San Diego, and Ventura County. On the other hand, Southern, Midwestern Housing Markets are great for young buyers. Buying is clearly a better deal in many Southern markets. Florida and Louisiana dominate the top ten list of places where young households will find buying an easier call, where in Fort Lauderdale and Miami, for instance, it is 44 and 43% cheaper for younger buyers to buy than rent.
Many metros have seen drastic swings in our rent vs. buy metric since 2012 when the housing market first started to turn around. That’s largely because of rebounding home prices and swings in how much prices rise relative to rents, and vice-versa.
In some markets, rent growth has outpaced home price growth. That has made home buying an even better financial choice vs. renting in those markets now than in 2012.
Now with these facts, hoping it helps illustrate whether should millennials rent or buy, make your own math and decide whether is better for you to rent or buy real estate in West Palm Beach.