To buy or to rent? The answer isn’t hard if you move around a lot or don’t have the cash on hand to cover a down payment, but for those looking to settle into a community for a number of years, the decision can come down to a simple question of finances. And according to a new report from Trulia, it’s still cheaper to buy in Los Angeles in the long run—in spite of sky high prices.
The bad news for homebuyers: Historically low interest rates haven’t done much to increase the overall benefits of buying over renting. Last year, when mortgage rates were slightly higher, it was 37.2 percent cheaper to buy; this year, the number has risen only slightly, to 37.7 percent, nationally. In Los Angeles, the savings are lower, with buying about 32.7 percent less expensive.
The reason savings haven’t increased much given the drop in interest rates is that the growth of home prices has outpaced rents over the past year. Across the country, prices have soared nearly six percent, while rents have increased just 3.5 percent.
The savings figures are calculated over a seven-year period, assuming a $536,350.60 sale price (with 20 percent down) versus a monthly rent of $2,600. That’s about the price of a median home and a median two-bedroom rental in Los Angeles, so savings numbers could decrease for homebuyers looking for an above average property or willing to settle for a less expensive apartment (or get a roommate).
The 32.7 percent savings figure provides enough of a cushion that buying would still be cheaper unless home prices jump 52 percent or mortgage rates increase to 7.4 percent (neither a likely possibility).
Still, all this is probably cold comfort to the high number of first time homebuyers for whom even starter home prices are well out of reach. For many in LA, renting might be more expensive over time, but it’s simply the only option available—and probably not in a $2,600 apartment either.
- Rent vs. Buy: Be Haunted by Prices, Not Rates [Trulia]
- LA Median Housing Price Has Topped Half a Million Dollars [Curbed LA]
- In Los Angeles, having a roommate saves $6,696 per year [Curbed LA]
- LA Starter Homes Completely Out of Reach of LA Starter Home Buyers [Curbed LA]