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Zillow: Buying better decision after two years

Posted on Wednesday, April 30, 2014 at 9:12:00 AM

Across the country, many potential homebuyers debate whether or not buying is a more cost-effective decision than renting. On one hand, it may seem that the smaller short-term expenses of an apartment are better than homeownership, but those rent payments add up after time.

To shed some light on this problem, Zillow recently analyzed a number of metropolitan areas to determine which was cheaper: renting or buying. The study found that in most places, buying beat renting after only two years. This "breakeven horizon" is the amount of time it takes for the costs of both options to intersect.

"Rents keep rising, and mortgage interest rates remain very low, which is helping to skew the rent vs. buy decision toward buying for those who can afford it," said Stan Humphries, chief economist at Zillow. "Many renters may ask themselves why renew a lease, when you can break even on the same home in less time in many areas."

In addition, it seems that more Americans are interested in homeownership and affordable residential financing. According to the National Association of Realtors, the Pending Home Sales Index increased in March, representative of the number of contract signings. Overall, the PHSI rose 3.4 percent on a monthly basis, indicating that sales activity should consistently pick up as summer approaches.