It's not easy for first-time home buyers to save for a down payment, closing costs and the reserves their lender will require they have in their bank accounts after closing. It's especially difficult in the Greater Boston Area.
Homes are expensive in Boston, but for individuals, couples and families that can save enough to take the plunge, owning a home will save them money over the long haul. Real estate Web site Zillow recently released its "Breakeven Horizon" report for the fourth quarter. The report indicates the number of years after which buying is more financially advantageous than renting.
In Boston, it becomes more financially advantageous to buy rather than rent in 3.4 years. While the break-even point for most U.S. cities is less than two years, Boston home buyers do not have to wait the longest to break even. Among the top 35 metro areas in the U.S. surveyed by Zillow, Dallas-Fort Worth had the lowest break-even point at 1.2 years. Indianapolis, Ind. and Detroit followed at 1.3 years. The longest wait to break even is in Los Angeles (5.1 years), followed by Washington D.C. (4.2 years) and San Diego (3.8 years). The national average is 1.9 years.
"Within Boston, the [break-even point] ranged from one year in Roxbury to 6.1 years in Back Bay and 7.2 years in Beacon Hill," Boston.com reported April 8, 2015. Boston renters on average spent 34 percent of their monthly income on rent in the third quarter of 2014, Zillow reports. That percentage has continued to rise, thus many renters want to become first-time home buyers.
Zillow's breakeven horizon incorporates all costs associated with buying and renting, including up-front payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities, maintenance, and renovation costs. The horizon also factors in home equity growth for home buyers, and, for renters, income earned, if they invested the same amount of money into an interest-bearing account. It also factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates.