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Buying a Home is Cheaper in the Area then Renting

September 20, 2013

D.C. is quickly becoming one of the most expensive cities in the nation to live in. But despite that fact, it’s still cheaper to buy a home in D.C. than it is to rent, according to a new report from Trulia.

According to the report, it is 31 percent cheaper to buy a house in the D.C. area than it is to rent. As outlined in the report, Trulia came up with a specific formula to determine these findings. The formula calculated a variety of factors that vary from city to city, including:

1. Calculating the average rent and for-sale price for an identical set of properties.

2. Calculate the initial total monthly costs of owning and renting, including maintenance, insurance, and taxes.

3. Calculate the future total monthly costs of owning and renting, taking into account price and rent appreciation as well as inflation.

4. Factor in one-time costs and proceeds, like closing costs, downpayment, sales proceeds, and security deposits.

5. Calculate the net present value to account for opportunity cost of money.

They put together an interactive map that shows what percent cheaper it will be to buy a home in a given area based on factors like your mortgage rate, income tax bracket, and the amount of years you plan to spend in your home.

Of course, rising mortgage rates are rapidly making it more expensive to buy a home, and the national average of what it costs to buy a home than to rent has dwindled by ten percent in just one year:

“But rising mortgage rates have narrowed the gap between the cost of buying and the cost of renting. The 30-year fixed rate is now 4.80%, compared with 3.75% one year ago (according to the Mortgage Bankers Association, or MBA). This jump in rates has raised the cost of buying relative to renting. As a result, buying is 35% cheaper than renting today, versus being 45% cheaper than renting one year ago.”

SOURCE: dcist

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