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Buying A Home Cheaper Than Renting In D.C. Area, At Least For Now

Residential real estate comes at a premium in the D.C. region, but a study says its still cheaper than renting.
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Residential real estate comes at a premium in the D.C. region, but a study says its still cheaper than renting.

Buying a home in the D.C. Metro area is 31 percent cheaper than renting according to a report by the real estate blog Trulia.

The number may seem high, but the nation's capital is not alone — the data shows it is cheaper to buy than rent in each of the 100 largest metro areas in the country.

The study compares the estimated sale price and rents for similar homes in similar neighborhoods, including relevant secondary costs like maintenance, insurance, taxes, security deposits and more. It also assumes the prospective tenant is in the 25 percent tax bracket (making between $72,500 and $146,400 for married joint filers), has secured a 4.8 percent mortgage rate on a 30-year fixed-rated loan with 20 percent down, and will live in the house for at least seven years.

But while the current real estate climate is favorable to home buyers, rising mortgage rates are beginning to tip the data in the other direction. When the 30-year fixed rate was 3.75 percent last year, it was on average 45 percent cheaper to buy than rent nationwide. With the current 30-year rate of 4.8 percent, it's now 35 percent cheaper nationwide.

For some areas of the country, Trulia chief economist Jed Kolko says a "tipping point" on mortgage rates could be approaching:

Because fluctuating mortgage rates can affect the rent versus buy math, we identified the mortgage rate "tipping point" at which renting becomes cheaper than buying, given current prices and rents. If rates keep rising, San Jose (Ca.) will tip first in favor of renting, at 5.2 percent. Already today, at 4.8 percent, buying is just 4 percent cheaper than renting in San Jose. The tipping point is below 6 percent in San Francisco and Honolulu as well, and below 8 percent in New York, Los Angeles, and seven other major metros. Nationally, the mortgage rate tipping point is 10.5 percent, and it's 20 percent or higher in Detroit, Gary (Ind.), and Cleveland.

The picture does change a bit when one alters the report's underlying assumptions using Trulia's interactive map. If one plans to stay in the D.C. Metro area for just three years, not unrealistic for a city often described as full of transients, home buying and renting reach parity.

Of course, when one says that home buying is "cheaper," that does not mean "cheap." The median sales price for residential real estate in D.C. was $425,000 in July, a year-over-year jump of more than 10 percent.

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