A new report from real estate analyst Attom Data Solutions may give renters another reason to stay on their leases. According to the report, renting is more affordable than buying a house in nearly 60 percent of cities nationwide—including Los Angeles.
In LA County, the report finds that a three-bedroom home commands a median price of $630,000. Assuming a low 3.5 percent down payment (which Attom uses so that calculations are more useful for first-time homebuyers), mortgage payments on a house at that price would be $3,062 per month, with current interest rates.
That pricy figure doesn’t even include property tax payments and mortgage insurance, which can drive up monthly costs dramatically.
Renting a three-bedroom house or apartment isn’t cheap either, but payments are far lower than those new homeowners can expect to pay. Per the report, a typical three-bedroom rental in LA costs $2,593 per month.
For those earning LA County’s median household income—around $61,000—renting that three-bedroom would mean spending 50.8 percent of that income on housing.
Those looking to buy a median-priced home making the median income may be out of luck. Attom calculates a typical purchase would require median-earning shoppers to put 86.3 percent of their income toward mortgage payments.
The report also finds that wage growth in Los Angeles County lagged behind both rental price increases and home value appreciation in the last year.
“With rental affordability outpacing home affordability in the majority of U.S. housing markets, and home prices rising faster than rental rates, the American dream of owning a home, may be just that—a dream,” says Attom’s director of content, Jennifer von Pohlmann.
Still, an important part of the renting versus buying equation that the report does not address is the equity gained through homeownership. With every mortgage payment a homeowner makes, they gain a larger share of their home’s eventual sale price. Renters gain only another month in their current residence when sending a check to their landlord.
Zillow’s rent versus buy calculator shows that homeownership eventually does become cheaper than buying in the scenario evaluated in the Attom report—it just takes four years for that to happen.
With median-priced homes out of reach for median earners, most Angelenos looking to buy will have to look at houses and condos at lower price tiers, meaning they may have to give up on amenities they could afford when renting.
As always, the decision to rent or buy is a tough one, and the Attom report shows why many LA renters may not be eager to save up for a costly down payment.
- Is it better to buy or rent in Los Angeles? [Curbed LA]
- 5 programs for first-time homebuyers in LA [Curbed LA]
- November is LA’s best month to find a deal on rent [Curbed LA]