The company just released their
The results? It turns out Memphis, Tennessee actually has the lowest breakeven horizon—only 1.32 years (basically, a year and four months) for owning to financially beat renting. The median rent price here is $1,395 per month, with the median home value being $132,762.
To establish the breakeven horizon, therefore, Zillow assumed a 20 percent down payment, monthly payments on a 30-year fixed rate mortgage at the current interest rate for people with credit ratings between 680 and 740, property taxes, homeowner’s insurance, 3 percent purchase costs, 8 percent selling costs, annual maintenance costs equal to 1 percent of the home’s value, home appreciation forecasts, and federal tax deductions. For condos, Zillow also assumed a 1.2 percent a year HOA fees.
For renting, Zillow calculated a security deposit equal to one month’s rent, monthly rent payments, renter’s insurance, and 5 percent annual investment gains on the money that would have been used as a down payment or gone toward other homeowner expenses that the renter naturally doesn’t have to deal with right now. So by these calculations, a renter would need to rent for a year and four months to make up the 20 percent down payment required to pay for a home in Memphis.
The top 10 cities with the lowest breakeven horizons are as follows:
1. Memphis, Tennessee – 1.32
2. Birmingham, Alabama – 1.39
3. Tampa, Florida – 1.40
4. Orlando, Florida – 1.44
5. Atlanta, Georgia – 1.45
6. Indianapolis, Indiana – 1.53
7. Dallas-Ft Worth, Texas – 1.55
8. Detroit, Michigan – 1.59
9. Louisville-Jefferson County, Kentucky – 1.66
10. Houston, Texas – 1.67
A few interesting findings? None of these cities feature on the list where millennials are
This suggests that the reason these places have cheaper homes is an issue of supply and demand: There are several jobs and homes available in these smaller cities, but there aren’t enough qualified people living there to take them. This makes sense, as
Alternatively, the city with the worst breakeven horizon is Los Angeles, CA—3.2 years on average, followed by Hartford, Connecticut at 3.23 and Virginia Beach, VA at 3.11. Of course, California also has several other cities on the worst breakeven horizon list, including San Diego and San Francisco—it
So, what do you do if you’re not ready to buy a home, or want to stay in a place that just isn’t affordable enough to purchase one? Don’t despair about your lack of homeownership:
Want to see where your dream city stacks up in terms of homeownership? Check out the
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