Renting vs Buying, break even point for SF is 15 years (San Francisco: real estate market, rental)

[sav858]

Renting vs buying in US cities - Business InsiderRenting vs buying in US cities - Business Insider

Should you rent or buy a home?

If you're living in a major city, chances are the housing market is competitive — and with higher prices, fees, and closing costs, it may not make sense to buy unless you're staying put for several years.

To give you an idea of just how long you have to stay in a city for it to be worth your money to buy, personal finance site SmartAsset calculated the breakeven point — the point at which the total costs of renting become greater than the total costs of buying — for 29 major cities.

SmartAsset compared the total costs of buying and renting for a household earning $100,000 a year. For the buying scenario, the research team assumed a mortgage rate of 4.5%, closing costs of $2,000, and a down payment of 20%.

Surprised that Seattle's break even point is a little longer than SF, I guess that means rent must be a little bit proportionally cheaper.

Wondering what people who have bought recently thoughts are too, do you plan to stay at least this long? If you're renting do you think you'll be here longer than 15 years?

[HockeyMac18]

Super interesting article. Thanks for posting.

I hear a lot of horror stories out there in the buying market these days - and one thing I hear consistently is that "20% down isn't enough" (I think because of the all cash offers that people are having to compete against?) - I wonder how the break even point changes if you make it something more "realistic" for what buyers are having to do these days (say 40-50% down?).

I suppose that should make the break even point shorter. But then again, if you apply that kind of stringency to the analysis, you'll lose a lot of people because it's not as common to just have 400k-500k laying around to put down on a house.

Also, I didn't see it specifically mentioned - but I'm assuming these are MSA stats? It seems that way based on some of the names (e.g. Riverside and O.C.). Part of SF's lower-than-expected break even point may be down to the East Bay's slightly cheaper prices. I imagine if you limit to only the city limits of SF, the results might be different (just speculating here, don't have any data).

[Chuck5000]

Key thing is people's expectations for buying. If people are expecting to buy in the Bay Area and enjoy the same appreciation over the next 5 to 15 years that has been seen in the last 5 years, then that is a fairly gigantic gamble. A foolish one.

I didn't read the article, but I think it's smart (and i think most people act on) the calcuation of rental vs. buying expenses. With interest rates low, buying can make sense, but if one has outlandish expectations about real estate as an investment, then it's a different ballgame.

See: "Renting is throwing money away is completely false" "Renting Is Throwing Money Away" Is Completely False

Also, yeah, the outlying counties of SF each are their own unique markets, definitely. I hear different stories for all of them, and there are submarkets within counties. So these kinds of stories usually never have the space to drill down that deep.

[bodyforlife99]

Foolish? Probably not if the trends in the SF real estate market stay true to form. Based on them, pricing will come down, recover, and hit new highs. In fact, you'd be hard pressed to find a 20 year period over the last 40-50 years where someone's house hasn't appreciated significantly. The term "foolish" is not synonymous with purchasing a home in San Francisco. I'd guess the people living in the same homes 20 years from now will be in $2 million homes. Then you'll have some clown making a stupid comment like you won the "born at the right time lottery".

[calicoastal]

Originally Posted by bodyforlife99

Foolish? Probably not if the trends in the SF real estate market stay true to form. Based on them, pricing will come down, recover, and hit new highs. In fact, you'd be hard pressed to find a 20 year period over the last 40-50 years where someone's house hasn't appreciated significantly. The term "foolish" is not synonymous with purchasing a home in San Francisco. I'd guess the people living in the same homes 20 years from now will be in $2 million homes. Then you'll have some clown making a stupid comment like you won the "born at the right time lottery".

Amen. If you want to pay thousands every month in rent and party every weekend, that is your business, but don't be bitter over people who were frugal, saved for a down payment, and bought a place. They were smarter than you, so deal with it.

[Chuck5000]

Calicoastal, show me an example of bitterness directed toward an individual who "were frugal" or got lucky. Or are "smarter".

If you're just generally saying, don't ever be bitter, then I'd love to hear how you evolved into SuperMan and banished all negative emotions and practiced loving-kindness to all. I'm sure you have no complaints that you ever air to other people, right?

If you only knew the people I knew in tech, I know brilliant people with solid careers who are OK but not even close to rich - and I know two (and have a friend of a friend who is another) who really weren't that competent, and totally hit the jackpot, multiple millions in net worth, and they bought real estate. Literally, these 3 are not that impressive. But nobody is allowed to express any negative emotions, right?

So these people were "smarter" than me, I suppose. Teach me your Dalai Lama like ways.

[Bisaro TMF]

Owning a home is highly overrated. The whole argument of your house goes up in Value over time is pointless because most people don't buy houses to keep flipping them the get a profit and move every 5-10 years. Moving sucks, the money you save for a down payment or in rent etc can be invested and grow just like a homes value. Not to mention all the issues that arise , need a new roof, that's 20-30k, need a new deck 10k. Need a new AC/Heater 10-15k. I currently own a home and rent a home as well. Owning can be a real PITA

[Hemlock140]

Originally Posted by sav858

Renting vs buying in US cities - Business InsiderRenting vs buying in US cities - Business Insider


Surprised that Seattle's break even point is a little longer than SF, I guess that means rent must be a little bit proportionally cheaper.

Wondering what people who have bought recently thoughts are too, do you plan to stay at least this long? If you're renting do you think you'll be here longer than 15 years?

Rent, along with purchase prices are definitely less here in Seattle. We still have immigrants from other states with severe sticker shock, our average rent for 1 BR is still only $1,500, less than half of S.F.

When it comes to home prices, our median is only about $526,000, compared to your 1 million. Again, sticker shock to people from the south or midwest, but just over half of S.F.

[sav858]

Originally Posted by HockeyMac18

Super interesting article. Thanks for posting.

I hear a lot of horror stories out there in the buying market these days - and one thing I hear consistently is that "20% down isn't enough" (I think because of the all cash offers that people are having to compete against?) - I wonder how the break even point changes if you make it something more "realistic" for what buyers are having to do these days (say 40-50% down?).

I suppose that should make the break even point shorter. But then again, if you apply that kind of stringency to the analysis, you'll lose a lot of people because it's not as common to just have 400k-500k laying around to put down on a house.

Also, I didn't see it specifically mentioned - but I'm assuming these are MSA stats? It seems that way based on some of the names (e.g. Riverside and O.C.). Part of SF's lower-than-expected break even point may be down to the East Bay's slightly cheaper prices. I imagine if you limit to only the city limits of SF, the results might be different (just speculating here, don't have any data).

I don't even see from a sellers point of view why a higher down payment is really that advantageous for them. The house across the street from me sold a few months ago, the owners accepted an offer that wasn't even the highest but had a higher down payment thinking they were more likely to close the deal b/c of it. Well the buyers backed out and they had to relist it.

There's a calculator linked to that article that lets you adjust all the variables (down payment, home price, rent, income, etc..) to see what the break even point is.

https://smartasset.com/mortgage/rent-vs-buy#6CzVL6mplI

[HockeyMac18]

Originally Posted by sav858

I don't even see from a sellers point of view why a higher down payment is really that advantageous for them. The house across the street from me sold a few months ago, the owners accepted an offer that wasn't even the highest but had a higher down payment thinking they were more likely to close the deal b/c of it. Well the buyers backed out and they had to relist it.

There's a calculator linked to that article that lets you adjust all the variables (down payment, home price, rent, income, etc..) to see what the break even point is.

https://smartasset.com/mortgage/rent-vs-buy#6CzVL6mplI

Thanks for that link. Really cool.

My break even point is 25 years (assuming I bought in the same neighborhood I'm in now)...