Inside a condo for sale in Georgetown.
Despite rising home prices, it is still cheaper to buy than to rent in the DC area if you can bring a good-sized down payment to the table and you plan to stay put for awhile, according to a report published today by Trulia.
Trulia determined that buying is 36.4 percent cheaper than renting in the region. Renting would begin to make more sense than buying if interest rates more than doubled to 8.6 percent, which Trulia chief economist Ralph Mclaughlin doesn’t see happening.
“Homebuyers should be more concerned about prices outpacing rents than any possible rate hike by the end of the year,” Mclaughlin said in the report. “This is because the tipping point for rates is proportionally much higher than the tipping point for prices. In other words, rates would have to go up much more than prices for the costs of buying a home to be parity with the cost of renting.”
As we have reported when covering this analysis in the past, it is important to understand the criteria that Trulia uses when determining if it is cheaper to buy than rent in a metropolitan area.
The company calculates the figures assuming a 20 percent down payment on a 30-year, fixed-rate mortgage financed with a 3.5 percent interest rate. It assumes people itemize their federal tax deductions and are in the 25 percent tax bracket, and factors in renovation and maintenance costs, as well as insurance, utilities, and property taxes at the average metro property tax rate. For renters, the company tacks on renters’ insurance.
Perhaps most significant in the calculations is that Trulia assumes that a homeowner will live in the home for at least seven years.
If you don’t agree with the assumptions, Trulia has a rent-versus-buy calculator, so that users can play around with specific numbers.
Photo above courtesy of HomeVisit.
This article originally published at http://dc.urbanturf.com/articles/blog/trulia_buying_36_cheaper_than_renting_in_the_dc_area/11804
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