Trulia’s Spring 2015 Rent vs. Buy Report

by dstonebuilders on May 19, 2015

Homeownership remains cheaper than renting in all 100 largest U.S. metro areas. In fact, buying is 35% cheaper than renting now, compared with 33% cheaper one year ago. Paradoxically, home price growth nationally has outpaced rents over the past year. So what gives? Two things. First, the 30-year fixed-rate mortgage rate has fallen from 4.5% in 2014 to 3.87% today (as of April 15). Second, the 3.9% home price gain wasn’t much larger than the 3.7% gain in rents. In the past year, these two trends have made homeownership even more affordable compared with renting.

Trulia’s Rent vs. Buy Report assumes a traditional 30-year fixed rate mortgage with a 20% down payment. But for those looking to buy a home, apartment, or condo with homeowner association (HOA) fees, the extra cost could make renting a more attractive option.

Our method for calculating the total costs of buying and renting follows these steps:

  • We use our quality-adjusted measure of home prices and rents, which allows an apples-to-apples comparison between rental and owner-occupied housing units. For this report, we looked at all the homes listed on Trulia for rent or sale in March 2015.
  • We calculate the initial total monthly costs of owning and renting, including mortgage payments, maintenance, insurance, and taxes. We make a separate calculation that factors HOA fees into the rent vs. buy equation.
  • We calculate the future total monthly costs of owning and renting, taking into account expected price and rent appreciation, as well as projected inflation.
  • We factor in one-time costs and proceeds, including closing costs, down payment, sale proceeds, and security deposits.
  • We calculate net present value, which tells us the opportunity cost of using money to buy a house instead of investing it. Net present value is the worth in today’s dollars of a future stream of payments and proceeds, taking into account expected interest rates.

To compare the costs of owning and renting, we assume buyers get a 3.87% mortgage rate on a 30-year fixed-rate loan with 20% down; itemize their federal tax deductions and are in the 25% tax bracket; and will stay in their home for seven years. Under these assumptions, buying is 35% cheaper than renting nationwide, considering all costs and proceeds from buying or renting over the seven-year period. You can read our methodology here.

The interactive Rent vs. Buy map shows how the math changes under alternative assumptions for mortgage rates, income tax brackets, number of years in the home, and HOA fees, if any. To estimate HOA costs, we combed through Trulia’s for-sale listings and calculated the median homeowner’s fee for each of the 100 largest metro areas.

Trulia’s Rent vs. Buy Calculator lets you compare renting and buying costs using whatever assumptions about prices, rents, and other factors you want, including HOA fees. It uses the same math that powers our interactive map and this report.

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