Rents have soared so high and interest rates dropped so low that U.S. renters can break even in fewer than two years on average if they buy a house instead, according to the fourth quarter Zillow Breakeven Horizon Report.
Still, 20 percent of renters surveyed say they prefer to rent, and 53 percent say poor credit or other financial barriers keep them from buying.
Of renters surveyed by Zillow:
- 18 percent say they can’t afford the taxes, maintenance and other costs associated with homeownership.
- 16 percent say they don’t qualify for a home loan.
- 13 percent say they don’t have enough savings for a down payment.
- 6 percent say they receive government assistance for their rent.
Only 14 percent of renters say they won’t be in their current location long enough to merit buying a home, which Zillow CEO Spencer Rascoff and Chief Economist Stan Humphries cite in their book, “Zillow Talk: The New Rules of Real Estate,” as a sound financial reason for not buying a home. Another is not having enough savings to weather a spell of unemployment or other financial setback.
It’s not surprising that some renters do not have down payments or qualify for home loans. About a quarter say they’re struggling just to pay the rent.
Indeed, U.S. renters can expect to spend 30 percent of their income on housing, while homeowners spend just 15 percent on a monthly basis, according to Zillow housing affordability data.
Zillow’s breakeven horizon calculates the point at which buying a home becomes less expensive than renting the same home and incorporates all costs associated with buying and renting — including upfront payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities, maintenance and renovation costs. It also includes home equity growth for buyers, and, for renters, income earned if they invested the same amount of money in an interest-bearing account. It then factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates.