Trulia: Buying is 31 Percent Cheaper Than Renting in DC Area

• September 19, 2013
• 12 Comments

by UrbanTurf Staff

To use the interactive map, click here.

Despite rising home prices, it is still cheaper to buy a home than rent one in the DC area (along with the 100 largest metros in the country), according to a report published today by Trulia.

Trulia determined that buying is 31 percent cheaper than renting in the region, down from 41 percent in favor of buying back in March. However, the real estate site predicts that this gap will only continue to narrow with rising interest rates:

The 30-year fixed rate is now 4.80%, compared with 3.75% one year ago. 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.

Now with rent-versus-buy analyses, there are always questions about methodology, so Trulia has laid out the step-by-step path they used to come up with rent-vs-buy determinations in metro areas around the country.

In short, Trulia’s team compared the average rent and for-sale prices of an identical set of properties in each city, and then considered the present and future monthly costs associated with buying and renting and factored in one-time costs like down payments and security deposits.

Trulia assumed that owners will have a 4.8 percent rate on a 30-year mortgage and will stay in their homes for seven years. However, they also created an interactive map to see how the numbers work with different assumptions. For example, if someone in the DC-area has a 4.8 percent interest rate on their mortgage, but plans on staying in their home for just five years, buying is 22 percent cheaper than renting. With plans to move after three years, the advantage of buying over renting drops off completely.

If you don’t agree with the assumptions, Trulia has unveiled their own rent-versus-buy calculator, so that users can play around with specific numbers.

This article originally published at https://dc.urbanturf.com/articles/blog/trulia_buying_is_31_percent_cheaper_than_renting_in_dc_area/7578

12 Comments

1. swester said at 6:12 pm on Thursday September 19, 2013:
   Well, it's not like there's any bias from Trulia about how homebuying beats renting. Buying is great - if you have the requisite loads of cash to win these bidding wars. Otherwise, you're out of luck in a seller's market.

1. Rachel said at 6:21 pm on Thursday September 19, 2013:
   @swester I would agree with you if the analysis wasn't so solid. Also, Trulia has been in the rental game for about two years. I totally agree that if you aren't staying in a home you just bought for at least three years it's not worth it. A 5-year timeline is more practical, frankly.

1. swester said at 7:08 pm on Thursday September 19, 2013:
   @rachel A fair point - length of intended stay is a big factor. For a lot of folks in DC (a pretty transient area), it can be hard to judge whether or not they'll be in DC for 5 years. And if the market stays relatively flat or trickles downward in the next few years, a buyer might be forced to either become a reluctant landlord or face a loss from all the closing/realtor's fees in a future sale. The other problem is that in this crazy seller's market, cash remains king. That's a LOT of money to tie up in a piece of property, which could be generating interest or profit elsewhere.

1. kob said at 7:27 pm on Thursday September 19, 2013:
   there's some properties you can get without bidding wars. Studios appear to be still selling a little below what there were during the bubble peak. In Adams Morgan, places under $200K pop up. Some one bedrooms can be reasonable. The downpayment and closing costs are major negatives, and then there is the entire rent vs buy argument and preservation of mobility, but it is true that mortgage cost with HOA, may be as much as a third less the rent from what I see.

1. swester said at 7:44 pm on Thursday September 19, 2013:
   The properties you can get without being in a bidding war are the properties no one wants, and usually for good reason. E.g. units with $1000+ co-op fees in Dupont or SW Waterfront, or dingy, miniscule studios that are going to seem pretty unattractive as the gobs of new inventory currently under construction becomes available in the next 2-3 years. I don't think buying is always a bad idea - but Trulia's sweeping conclusion seems deeply flawed.

1. Mike said at 7:59 pm on Thursday September 19, 2013:
   @ swester: Your characterization of the SW waterfront shows a lack of knowledge of what you can find for very reasonable prices. One community offers several types of efficiencies for less than $200,000 and with low monthly maintence fees between $500 and $600 (and if it's a co-op, the fee also includes your share of DC real estate taxes, so keep that in mind when comparing costs). The community to which I refer includes efficiencies that have an "English Garden" (walled patio with their own private garden area), several have circular staircases leading to their own personal roof-top terrace, others have amazing views of the waterfront. Plus, their monthly fee includes a year-round indoor swimming pool, 24/7 security and Gatehouse, and a well organized exercise room overlooking a large reflecting pool with fountains. I dare say, you can't get a better value if you are looking for an efficiency.

1. Katy said at 8:51 pm on Thursday September 19, 2013:
   One "human" factor left off of an analysis like this is that people may want to buy a place a little nicer than they are renting. For example, a young professional willing to live in a small studio but dreams of owning something bigger in a more hip area. Or a married couple renting a one-bedroom who wouldn't buy anything smaller than a two-bedroom. So by the numbers, yes buying is cheaper than renting, but if you're looking to upgrade your living situation you might break even or end up with higher homeowner expenses.

1. Justin S said at 10:44 pm on Thursday September 19, 2013:
   Mike said at 2:59: "One community offers several types of efficiencies for less than $200,000 and with low monthly maintence fees between $500 and $600" Um... $500 a month in maintenance would be more than 50% of the monthly payment sans-maintenance. Unless that's including taxes & utilities, you'd have to be a shmuck to buy that. With fees so high, the overall percentage of your house payment would never get high enough to be considered much of an investment. That mortgage would likely be about $1,700 a month, all bundled? Of that, even after 7 years, very little would be going toward the investment.

1. katydid said at 12:50 am on Friday September 20, 2013:
   @swester - I think you are overstating the bidding wars. At the beginning of this month, I bought a $200K condo in Brookland with moderate fees. There aren't that many people paying all cash in that market so the biding wars are restrained by appraisals.

1. Daniel said at 3:21 pm on Friday September 20, 2013:
   Regarding becoming a reluctant landlord - don't many condo and coop buildings restrict the number of tenants? That has to be a consideration too, particularly when it's difficult for so many of DC homebuyers to say with any certainty that they'll remain here for 3-5 years.

1. mona said at 6:26 pm on Friday September 20, 2013:
   One thing that isn't mentioned in this article that I hope we all learned from the past recession....not everyone is cut out to be a homeowner. Just cause it maybe cheaper to own it isn't an immediate fact. If you have one of DC's older homes, even a gut and redo. Older homes always have expenses like brick point work which most builders or flippers will paint over to hide. This can be huge expense and it has to be worked into budget and it has to get done unless you don't mind your heating and AC bills being astronomical. Things break in homes like hot water heaters and if your living right on the edge with expenses and no cushion than one broken HW heater could send you into a tail spin. Nothing like being able to call a landlord or builds facilities guy to come deal with it. Just because you can doesn't mean you should

1. Mike said at 7:57 pm on Friday September 20, 2013:
   @ Justin S: The $500-$600 monthly fee in the building to which I referred includes all utilties including Comcast TV and Internet, electric, gas, oil. It includes the annual property tax, too. The fee is comprehensive and the amenities are many. As I wrote earlier, it also includes 24/7 Gatehouse and security, year-round in-door pool, and a gym, also available 24/7. It also has a car wash, library, roof-top club room, indoor, secured parking, many roof-top public areas and more. Many people who live there want the security and privacy. Many are Congress people. It was home to former Supreme Court justices, Senators, and a Vice President. It may not be for you, but there are many of us who appreciate the complex and its many amenities plus the convenience to commuting to the Hill and Virginia. To get this for under $200,000 is a good value, at least for many of us who live there.