Buying vs. Renting Pays Off in Shorter Time in Las Vegas Than National Average
This is a great article that appeared recently in the Las Vegas Review Journal:
Anyone who intends to live in Las Vegas for at least a year and eight months is better off buying than renting, a new study from Zillow real estate listing service shows.
Zillow analyzed the “break-even horizon” to determine it would take at least three years before owning a home becomes more financially advantageous than renting the same home in three-fourths of 200 metros and 7,500 cities.
But in cities where home values fell the most during the housing recession, home buyers break even after less than two years.
Miami-Fort Lauderdale, Fla., is among the most favorable for buying, with homeowners breaking even after only 1.6 years of living in the home. Las Vegas is not far behind at 1.7 years.
On the other end is San Jose, Calif., where home values are among the highest in the nation. Buyers there must commit to living in their homes for 8.3 years before they break even.
Within metro areas there is often a sizable variance from one community to the next. For example, in the Las Vegas area it would take 2.7 years to break even on a Mount Charleston home, compared with 1.3 years in Indian Springs.
Historic levels of affordability across the country and record-low interest rates make buying a home a better decision than renting, especially since rents have risen more than 5 percent over the past year, Zillow senior economist Svenja Gudell said Thursday.
All possible costs associated with buying and renting were incorporated into the analysis, including down payment, mortgage and rental payments, transaction costs, property taxes, utilities, maintenance costs, tax deductions and opportunity costs, while adjusting for inflation and forecasted home value and rental price appreciation.
Gudell said the break-even mark is much more useful than the conventional price-to-rent ratio that compares median home prices against average rent.
“That’s comparing apples to oranges because homes for sale are different than homes for rent,” she said. “They’re typically larger homes in the suburbs and a greater variety. Homes for rent tend to be smaller and cheaper. Every month it changes.”
Las Vegas remains affordable for buying, said Jed Kolko, chief economist and head of analytics for Trulia.com, another online real estate listing service.
Trulia’s latest survey shows Las Vegas with a price-rent ratio of 7, which makes it among the best metros in the country for buying versus renting. Anything below 15 indicates it’s better to buy than rent.
“We do an apples-to-apples comparison of similar units in similar neighborhoods to come up with this ratio, and we factor in all those other costs – insurance, taxes and more – to determine whether buying or renting is cheaper,” Kolko said.
Trulia shows Las Vegas home prices up 0.4 percent year-over-year in June and rents down 2.1 percent, which means buying is less affordable than it was, even though buying is still much cheaper than renting, Kolko said.
How many years it will take before owning a home becomes more financially advantageous than renting the same home.
|Miami-Fort Lauderdale||1.6 years|
|Tampa, Fla.||1.6 years|
|Las Vegas||1.7 years|
|Orlando, Fla.||1.7 years|
|Riverside, Calif.||2.0 years|
|Dallas-Fort Worth||2.1 years|
|Pittsburgh, Pa.||2.1 years|
|Columbus, Ohio||2.4 years|