Trulia: Buying Cheaper Than Renting In DC Until Rates Reach 9%
Now that mortgage interest rates seem to be moving north rather quickly, everyone is wondering how much the increasing rates will impact housing affordability. So Trulia economist Jed Kolko recently crunched some numbers to find out how the rising rates will impact the ever-present rent versus buy debate across the country.
Kolko updated the numbers in Trulia’s Buy vs. Rent calculations, and played with interest rates until he found the “tipping point”: the number that, when exceeded, makes buy a pricier proposition than renting. Nationally, Kolko found that the scales wouldn’t tip in favor of renting until rates hit 10.5 percent. In DC, Kolko told UrbanTurf, buying becomes more expensive than renting when mortgage rates hit 9.1 percent. In nearby Bethesda, the number is 9 percent. While the number is lower in expensive areas like San Francisco and New York, in 78 out of the 100 largest metros, the interest rate tipping point is 10 percent or higher.
From Trulia:
Because mortgage rates are still near long-term lows, and because prices fell so much after the housing bubble burst and remain low relative to rents even after recent price increases, buying is still much cheaper than renting. The recent jump in rates doesn’t change the rent-versus-buy math much.
The buy-versus-rent analysis calculates the cost of buying and renting for two similar properties, including maintenance, insurance, taxes, closing costs, down payment (20%), sales proceeds, as well as mortgage payments on a 30-year fixed-rate loan and monthly rent. Trulia assumes that buyers will live in their homes for 7 years during which modest price appreciation will occur, and that the owners will deduct their mortgage interest and property taxes. They also calculate the net present value to account for inflation over time, which reflects the opportunity cost of tying up your cash in a down payment. For the full methodology, click .
While the Trulia conclusions are interesting and based on a pretty sound methodology, there is no way of telling the trajectory of home prices or rental rates from one year to the next (or even 7 years out), factors that will weigh heavily on whether or not the real estate site’s latest assessment proves to be true.
Similar Posts:
- Interest Rates: The Difference a Month Makes
- Will Interest Rates Be Above 4 Percent By Mid-June?
- Trulia: Buying is 41 Percent Cheaper Than Renting in DC
See other articles related to: buying versus renting, trulia
This article originally published at https://dc.urbanturf.com/articles/blog/trulia_buying_will_remain_cheaper_than_renting_in_dc_until_rates_reach_9/7191.
Most Popular... This Week • Last 30 Days • Ever
Renter demand has continued to push Class A apartment rents in the DC region up this ... read »
DC's homebuyer assistance programs can be a bit complex. This edition of First-Timer ... read »
Pocket listings are growing in popularity in the low-inventory market in the DC regio... read »
In this article, UrbanTurf looks at the estimated annual maintenance costs associated... read »
Plans for the development at a prominent DC intersection began nearly eight years ago... read »
DC Real Estate Guides
Short guides to navigating the DC-area real estate market
We've collected all our helpful guides for buying, selling and renting in and around Washington, DC in one place. Start browsing below!
First-Timer Primers
Intro guides for first-time home buyers
Unique Spaces
Awesome and unusual real estate from across the DC Metro