Trulia: Buying is 34% Cheaper Than Renting in DC Area

• February 26, 2014
• 14 Comments

by UrbanTurf Staff

Courtesy of Trulia Trends. To use the interactive map, click here.

Despite rising home prices, it is still cheaper to buy than to rent 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 34 percent cheaper than renting in the region, up from 31 percent in favor of buying back in September. However, the real estate site predicts that this gap will likely narrow with rising interest rates and home prices:

Some markets might tip in favor of renting this year as prices continue to rise faster than rents and if – as most economists expect – mortgage rates rise, due both to the strengthening economy and Fed tapering.

Trulia sent UrbanTurf some DC-area specific stats, breaking down the region into the city proper and the surrounding counties from a rent versus buy perspective. Check out the data below.

Note: Negative numbers indicate that buying costs less than renting.

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 4.5 percent rate on a 30-year mortgage, put 20 percent down 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 4.7 percent interest rate on their mortgage, but plans on staying in their home for just five years, buying is 25 percent cheaper than renting. With plans to move after three years, the advantage of buying over renting drops off almost 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.

The other thing that plays a huge role in this determination is home price appreciation and depreciation, which Trulia takes into account:

In our rent vs. buy calculations, we use a conservative annual home price assumption that ranges between 1.7% and 3.1%, depending on the metro. The reality, though, is that there’s a huge degree of uncertainty about what home prices will actually do, and the cost of buying relative to renting could turn out to be a lot higher or lower than with our conservative baseline appreciation assumption. To see how much uncertainty there is around what could happen to home prices, we calculated the annual home price appreciation for the best and worst seven-year periods over the past 20 years for each metro, using Federal Housing Finance Agency (FHFA) price data.

This article originally published at https://dc.urbanturf.com/articles/blog/trulia_buying_is_34_percent_cheaper_than_renting_in_dc_area/8170

14 Comments

1. B Ford said at 3:52 pm on Wednesday February 26, 2014:

   I think about this often. My mortgage on a 2 bedroom condo is a little over $1K. I’m near major roadways and bus lines. There are VERY few 2 bedroom apartments in DC renting for that.

1. RedinAlexandria said at 4:24 pm on Wednesday February 26, 2014:

   What about property taxes associated with owning? And the maintenance costs—like replacing windows, HVAC, roofs, etc.—that go along with owning?

1. The Editors said at 4:29 pm on Wednesday February 26, 2014:

   Redin Alexandria,

   You’ll see in the link about Trulia’s methodology that we included in the 5th paragraph that they include monthly costs, like insurance, taxes, and maintenance for home ownership in their calculations.

   The Editors

1. bobbylee said at 4:35 pm on Wednesday February 26, 2014:

   Or even costs associated with keeping the property in sellable shape such as painting and replacing the kitchens and baths every 20 years? These all add up to a lot of money that most buyers don’t think about.

1. Tommy said at 4:40 pm on Wednesday February 26, 2014:

   Bobbylee,

     Remodeling every 20 years (which you are probably only going to do once) is MUCH cheaper than the sky-high rents you will be paying for a apartment every single month.  Not to mention those remodels are an investment that only make your property more valuable when you sell.  You don’t recoup any of the money you sink into rents.

1. kob said at 4:45 pm on Wednesday February 26, 2014:

   @bobbylee

   All of that matters, kitchen replacements, etc. But look at it this way, if you are in a property for 20 years your cost are going to be way below rental by that point. You may have 10 years left on a mortgage and then you are free and clear, if not sooner.

   Fifteen years ago you could have bought a studio apt. in many DC neighborhoods with your credit card. They were that cheap. 

   In 20 years, the prices today may look very cheap in a decade or two.

   But if you rent, you can count on rental cost reflecting the market.

1. Marc said at 4:48 pm on Wednesday February 26, 2014:

   I don’t know anyone who has been able to afford putting 20% down on a home - on a $500k property, that’s $100k! If we look at the FHA minimum downpayment (which I see far more often), you’re looking at a 3.5%, which has a big affect on your mortgage payment.

1. SW, DC said at 5:16 pm on Wednesday February 26, 2014:

   wonder who thought it was cheaper to rent? this almost seems obvious…

   I’m surprised the DC market doesn’t demand more condos. All I see being built is apartments… Does no one want to stay in DC?

1. LisaJDC said at 9:48 pm on Wednesday February 26, 2014:

   It’s not cheaper if you want to buy a condo. HOA dues are excessive, and when tacked onto a mortgage payment the cost is almost always more than renting.

1. Colin said at 10:44 am on Thursday February 27, 2014:

   @Marc: My wife and I, ages 32 and 36, recently put down 40% on a 2BR, so people are doing it. I’ll add that I never made more than $50K until age 30, and I have never made more than $70K in a year.

1. BTA said at 11:19 am on Thursday February 27, 2014:

   Isn’t the caveat that there are fixed costs to buying and selling so if you will probably move within say 5 years buying doesnt make sense?

1. DomRep said at 11:48 am on Thursday February 27, 2014:

   @Marc - a lot of people are selling their first home and using the profits to put a huge chunk of it down on another home, hence the lower mortgage costs.

   @Lisa - As far as condo fees, I pay around $315 per month but that includes all utilities. Total mortgage after condo fees added in is about $1400 for a studio condo, which is probably cheaper than most studios in DC, and I live in the city. Some condos (and I looked believe me) would only include electric, water + rest is on the owner.

1. Suze O. said at 5:50 pm on Thursday February 27, 2014:

   If you can’t afford to save up 20% for a down payment, then you can’t afford to own.  Keep renting.

1. http://www.GetDCSold.com said at 7:53 pm on Sunday November 16, 2014:

   @Suze O-You have to save 20% for a down payment to buy a house. There are programs now where you can get a Conventional loan as low as 5%-10% down. And don’t forget you only need 3.5% down if you are use a FHA Loan.