The choice between buying a home and renting one is arguably one the biggest financial decisions that many young adults face. While there are several factors that can make a housing decision a complicated one, especially if it’s your first time, there are a few recent data points that might help inform your decision.
Buying a home is now 23 percent cheaper than renting nationwide for millennials. Now is the best time to buy since 2012 when interest rates were a tad lower, according to Trulia. And buying would be even cheaper if it weren’t for the reality that millennials tend to move every five years and typically can only afford 10 percent of a down payment. However, it’s important to remember that the “buy vs. rent” equation differs widely based on which city you’re talking about. For your reference, we’ve included a few examples below, courtesy of Trulia:
- In New York, buying is now 11 percent cheaper than renting for younger consumers
- Buying a home is 5 percent more expensive than renting in Honolulu
- In Houston, it is 46 percent cheaper to buy a home than it is to rent
- In San Jose, California, you would pay 2 percent more to buy a home versus rent one, whereas in San Diego or San Francisco it is roughly 7-10 percent cheaper to buy
In short, the increasing cost of renting relative to the cost of ownership, the unsteady performance of the stock market, and the continuation of incredibly low mortgage financing are creating an environment in which the majority of U.S. housing markets are in “buy” territory. Unsurprisingly, this has more and more millennials looking to build equity and invest in a home sooner rather than later.
In fact, the latest the Zillow Housing Confidence Index revealed that about 5.2 million renters said they expected to purchase a house in 2015, up from 4.2 million in 2014, according to Bloomberg. In markets such as Atlanta, Cleveland, Philadelphia, and Chicago, homeownership, on average, produces more wealth than renting a comparable property and reinvesting in stocks and bonds. An important fact for young professionals who are thinking long term!
If you are weighing your own home-buying decision, be sure to check out the New York Times’ Upshot Calculator, a handy tool that helps you do the complicated analysis behind the “buy vs. rent” conundrum.