Report: Homeownership in DC Area 43 Percent Cheaper Than Renting

• September 13, 2012
• 5 Comments

by Shilpi Paul

Click here for Trulia’s interactive rent vs. buy map.

Trulia’s latest Rent vs. Buy Report released Thursday morning stated that homeownership is 43 percent cheaper than renting in the DC area.

In their newest report, the analytic arm of the real estate website compared the average cost of renting versus owning for homes in DC, Maryland, Virginia and a small portion of West Virginia. Their calculations reveal that homeownership is not only cheaper than renting in the DC area, but in all of the 100 largest metro areas in the U.S. The degree to which it is cheaper varies; in Honolulu, for example, buying is 24 percent cheaper than renting, but in Detroit, buying is 70 percent cheaper. In the DC area, Trulia determined that on average, renting is $893 more expensive per month than owning.

Courtesy of Trulia Trends

It is important to know that in coming to these conclusions, Trulia assumes that owners will stay in their homes for at least seven years, secure a low mortgage rate, and take appropriate tax deductions (and, as the commenter below points out, does not take into account the maintenance and improvement costs associated with home ownership). Without these conditions, some of the cities tipped out of the group, with ownership becoming more expensive than renting. Trulia created an interactive map that allows you to play with these factors and see what happens when, for example, you only want to stay in your home for 5 years.

“Homeownership is cheaper than renting in all of the 100 largest metros, by a wide margin,” said Jed Kolko, Trulia’s Chief Economist. “Despite the recent price rebound, rents continue to rise faster than prices, and mortgage rates are near record lows. Homeownership makes the most financial sense for people whose strong credit scores let them snag the lowest mortgage rate and who get the biggest benefit from deducting mortgage interest and property taxes from their income taxes.”

To determine the percentage, Trulia looked at all the for-sale homes and rentals on their site. “On for-sale homes, we took the asking price and estimated what it would rent for; for rentals, we took the asking rent and estimated what it would sell for. That way, we can calculate the average rent and asking price for an identical set of properties in a metro area, for a direct apples-to-apples comparison,” stated Kolko.

However the issue with the report, from our perspective, is that DC’s averages seem unlikely to be comparable. The report states that the average monthly cost of owning in the DC area is $1,205 per month, while the average rent is $2,098; the two properties you imagine representing those averages are almost certainly quite different from each other. Since the region that Trulia considers the DC area is so broad, it appears that the owning costs are brought down significantly by regions outside the city.

To see Trulia’s full post and interactive graphic, click here.

This article originally published at https://dc.urbanturf.com/articles/blog/report_homeownership_in_dc_43_percent_cheaper_than_renting/6019

5 Comments

1. anon said at 10:37 am on Thursday September 13, 2012:

   Trulia assumes that owners will stay in their homes for at least seven years, secure a low mortgage rate, and take appropriate tax deductions

   ... and assumes nothing ever breaks, nothing needs scheduled maitenance/replacement, ownership incurs no carrying costs to buy and sell, property is perfectly suited to owner and never needs improvements, never exposed to any natural disaster… 

   I own, but I often find these calculations overly rosey and conveniently cherry pick the benefits of home ownership while ignoring the real costs.

1. JTC said at 10:43 am on Thursday September 13, 2012:

   What a terrible piece of research.  DC metro monthly rent of $2,098 I can believe, but cost of owning the same property for $1,205?? Not even close!  My 10 year old niece can do better research

1. Robert said at 1:19 pm on Thursday September 13, 2012:

   That last paragraph in the article is important in the context of this report. It appears that Trulia used the MSA for the DC area, which includes broad swaths of MD and VA. So while not inaccurate, the numbers for ownership are skewed because such a large area was considered.

   Regardless, rent is still quite high in DC!

1. anon said at 2:12 pm on Thursday September 13, 2012:

   too damned high if you ask me

1. Susan Isaacs, Realtor said at 5:14 pm on Thursday September 13, 2012:

   Our data puts the breakeven horizon at 3 years for DC right now depending on the location of the property. Rents are projected to come down slightly in the near future for a short time as new rental properties flood the market ahead of the coming influx of new renters. Think Paul had a report on that recently. Yes, these numbers seem way off. Good point from Robert about DCM vs DC. The thing I like most about “research” like this Trulia report is that it really highlights the need for local agent expertise!