Is it Cheaper to Own than Rent?

Hello. We hear a lot lately about housing affordability, and many may argue if it’s best to rent or buy.

Well, right now, owning a home is cheaper than renting even here in Los Angeles.

Hello everyone, Steve here to hear from Century 21 Union and housesinsouthbay.com And let me show you where right now it’s cheaper to own than to rent. Now we all know that both rent and home prices are going up, but it’s that rising appreciation that makes it cheaper to buy a home than to rent.

Let’s say, hypothetically, you bought a home in the last few months with a 30 year fixed mortgage and 5% down. If we added up all the cost of buying that home, you’d see that renting is cheaper for the first few years, but that leaves out the main benefit of owning versus renting: the accumulation of equity. Now because of our currently rapid appreciating home prices that equity builds up fairly quickly. And lately, sometimes that appreciation is going up more than your mortgage payments each month, giving you a negative cost to own.

Now, this chart compares the cost of renting versus buying in the top 50 markets here in the United States, adjusted for that appreciation. The wider the gap, the more advantage there is to own over renting. As you can see in the Los Angeles market with the current appreciation, monthly cost of ownership is negative $4,000. while the median rent is around $1,900. Yes, you still have to pay your mortgage. And let’s say that was $2,500 a month, but you got $4,000 increase in equity. Now I don’t know about you, but I’ll pay $2,500 to get 4,000 pretty much any day.

Now, just to be fair, it’s owning always cheaper than renting? No. Matter of fact, if interest rates go up or if appreciation slows down, then those numbers will get a lot closer together and could even reverse. But often the cost to buy is higher than renting, but right now we’re in a fantastic situation. But even when the cost of owning is higher, remember all that equity is yours when you need it for those life’s little emergencies or when you sell your home. Now you don’t get any of that rent back when you leave your rental.

So please remember to like or subscribe and especially share. And let me hear your real estate questions. Bye for now.