Long-term forecasts indicate renters could soon be buying

Zillow Published:

By S.E. Slack

Is it worth it to buy a home right now? Real estate firm Zillow tackled this question with a few more for renters considering jumping into home ownership. Depending on the housing market in your area, renting could very well be the way to go for another year or two.

The first thing for renters to consider is the price-to-rent ratio. This ratio measures how expensive home purchasing is comparative to renting by equating the value of a house with annual rental payments. The higher this value is, the longer it takes for the costs of renting to exceed the costs of buying, and so the longer the breakeven horizon. The breakeven horizon is a method of comparing various groupings of something you consume, such as the equity in your home or the worth of other assets.

Next on the list is expected home value appreciation.

“The faster home values appreciate,” says Skylar Olson, Zillow economist, “the smaller the net cost of owning in the coming years, and the sooner a homeowner will break even.”

Kent home values have gone up 1.2 percent over the past year and Zillow predicts they will rise 1.1 percent within the next year. The median rent price in Kent is $1,000, which is higher than the Akron metro median of $850.

Low inventory of for-sale homes also contributes to rapid rent growth, says Olson. When rental affordability is low, it helps speed up breakeven horizons.

Renters should know the expected rental inflation in their areas. The faster rents rise, the less time it takes for rental costs to surpass the costs of buying a home. For example, in Kent, ZIP codes 98030 and 98032 with breakeven horizons of 1.5 and 1.3 mean that it will take slightly more than a year of renting before the costs exceed the costs of buying. But ZIP code 44240 takes slightly longer at 2.2 years and ZIP code 06757 has a breakeven horizon of 4.8 years.

It’s also important to understand the rate of return on non-housing investments, such as savings accounts. The faster those investments rise, the lower length of time you’ll need to reach the point where buying a home is a smart option.

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