When is it the right time to switch from rent to owning? Usually this answer is subjective, depending on things like income, family size and location. However, in real estate it can often be a matter of time. Recent reports are showing that while nationally, people are recouping their investments on homes faster, in major metro areas the opposite appears to be true.
The national breakeven horizon — the amount of time needed to own the home before owning makes more sense than renting — recently dropped to 1.8 years in Q2 2017, according to a new Zillow report. This means that nationally, homeowners only need to own a home for about 2 years before it is more fiscally smart compared to renting the same home. However, most of the U.S.’s major metro areas have actually seen an increase in the breakeven horizon.
Boston’s median breakeven horizon is about 2.4 years. While this number is not only higher than the national average, it is actually down about three months from the previous year. Also, Boston’s expected home value appreciation after the first year of ownership is 3.4 percent. Meaning that for every dollar spent on a Boston home, the owners will make a little more than 3 percent on the investment back within the first year.
Q2 2017 also reported an increasing gap in the price-to-rent ratio, one of the most common ways to calculate if it is a good choice to rent or buy. In Boston the median home value is $417,456, compared to its median monthly rent of $2,500. To calculate Boston’s price-to-rent ratio, Zillow divided the median home value by a year’s worth of the median rent ($30,000). This makes its price-to-rent ratio 14.1, which is a little more than half of the highest U.S. ratio (San Jose, California with a ratio of 23).