By S.E. Slack
Real estate firm Zillow explored when renters should considering jumping into home ownership. Throughout Ohio, it claims, renters can expect a breakeven point within the next two years.
The price-to-rent ratio measures how expensive home purchasing is comparative to renting by equating the value of a house with annual rental payments. The higher this value is, the longer it takes for the costs of renting to exceed the costs of buying, and so the longer the breakeven horizon.
“The breakeven horizon between renting and buying gives the number of years you would have to live in the home for the accumulating net costs of renting to exceed those of buying,” said Skylar Olson, Zillow economist.
The faster rents increase, she said, the less time it will take for the costs of renting to exceed the costs of buying. Because rental affordability is currently at a record low, breakeven horizons are shorter than analysts expected a few short years ago.
In Cincinnati, for example, expected home value appreciation during the first year of home ownership is expected to rise just 0.83 percent while first-year rental costs will rise 4.36 percent during the same timeframe. It will take approximately 2.2 years for new homebuyers to begin recouping costs and start reaping the appreciation benefits of homeownership.
In other parts of Ohio, the breakeven point comes even more quickly. New home buyers in Wheeling, for instance, will begin to break even in little more than a year.
But the markets can vary immensely across the United States. In Minneapolis, the median breakeven horizon for renters is 3.1 years. Home values are expected to rise 1.27 percent in the coming year while rents will leap ahead at 4.7 percent. In the long run, however, home values and rent inflation will be within a half point or so of one another, giving that city’s renters a good shot at owning a home sooner rather than later.