Earlier this year, DC seemed to be getting closer to the national average for how long the region’s homeowners needed to stay in their homes in order to break even. Now, however, rising home purchase expenses mean that DC homeowners will have to wait a year longer.
Zillow’s latest Break-Even Horizon report out today shows that in the first quarter of this year, the break-even horizon for the DC area had risen by nearly a year, from 3.5 to 4.5 years. This shift ties the region with San Diego as having the fourth-longest break-even horizon in the country and gels with Trulia’s analysis that buying a home has become slightly less of a bargain compared to renting.
The nationwide median breakeven point also rose at a comparable rate, from one year and 11 months at the end of last year to 2.1 years at the beginning of 2017.
Zillow’s calculations for breaking even attempt to assess the costs of purchasing a home in a given metropolitan area compared to the cost of renting that same home, using a random sample of 3,000 units in each zip code. The purchase price and rental rate of the dwelling is determined using the much-scrutinized Zestimate tool.
A purchase assumes a 20 percent down payment on a house with a 30-year fixed-rate mortgage at the current interest rate. Purchasing costs also include homeowner’s insurance, property taxes, 3 percent closing costs, selling costs, and 1 percent of home value in annual maintenance costs; 1.2 percent in annual condo fees is also added for those units. All costs are balanced out by tax deductions and predicted home appreciation. Costs to rent include one month’s security deposit and renter’s insurance, while assuming that the renter accrues 5 percent annually on the foregone down payment by not having to pay home-associated expenses.
This article originally published at http://dc.urbanturf.com/articles/blog/breakeven_horizon_for_dc_homeowners_gets_a_bit_longer/12661
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