by John Tenpenny
Young homebuyers are the lifeblood of many agents’ business, so a report that indicates that it makes sense for millennials to purchase a home rather than rent in most cities is comforting news.
The latest edition of Rent vs. Buy from Trulia, which takes into consideration some millennial factors, found that “buying is not only 23 per cent cheaper than renting nationally, it is also cheaper than renting in 98 of the nation’s top 100 markets.”
While this calculation shows that buying is still cheaper than renting, the difference is pretty close in some places, especially in California.
The report noted that there are additional economic conditions that influence today’s market, such as home-price growth, which has outpaced rents since 2012, but that low interest rates help offset this advantage for the rent side.
Usually, when Trulia crunches its home-buying numbers, it assumes a 30-year, fixed-rate mortgage with a 20 per cent down payment for households moving every seven years. Following these guidelines, buying is 36 per cent cheaper than renting on a national basis, based on September home prices.
But the issue with this model is that it doesn’t fit the situations that average millennials face, according to Trulia. Instead, the company said that it is typical for young households (ages 25-34) to move every five years and only be able afford up to a 10 per cent down payment. Trulia also assumed a 3.85 per cent mortgage rate on a 30-year fixed-rate loan, itemized federal tax deductions and a 25 per cent tax bracket.