Dive Brief:
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The amount of time it takes to recover the cost of a home purchase compared to renting the same property has increased as the rise in home prices moderates in some of the country’s priciest markets, according to a study by Zillow. The faster prices increase, the quicker owners build equity.
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The national Breakeven Horizon, which is the point at which buying a home becomes less expensive than renting it, moved out to 1 year and 11 months in the fourth quarter compared to 1 year and 10 months a year earlier.
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Year-over-year, the breakeven point was more than four years in the California cities of San Diego, San Francisco, San Jose and Los Angeles. Meanwhile, buyers in Atlanta, Detroit, Indianapolis, Orlando and Tampa, FL, had to wait less than a year and a half to recoup their initial costs.
Dive Insight:
The Zillow report calls attention to the divergence in the U.S. housing market as the run-up in home values eases in many of the most expensive markets, such as the San Francisco Bay Area, while prices in parts of the Midwest and the South continue to climb.
The trend is not being seen in all cities, however. Zillow noted that the upward trend in home prices in Washington, D.C., has cut the breakeven point there to 3 years and 6 months during the fourth quarter from 4 years and 5 months a year ago.
Home prices nationally are continuing to trend higher, with the latest S&P Core Logic Case-Shiller U.S. National Home Price Index rising 5.6% on an annual basis in November from 5.5% in October.
While elevated prices continue to dominate many West Coast markets, recent figures indicate that smaller, inland markets like Denver, Nashville, TN, and Orland, FL, are also seeing rapid price appreciation.
Meanwhile, the cost of renting is following a similar trend. The latest data from apartment-search platform Zumper noted that rents are tapering off in the most active markets while continuing to climb in mid-market cities like Nashville and Houston.
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