Rent or Buy in California?

Rent vs Buy: 2020

According to Attom Data Solutions 2019 Rental Affordability Report renting a three-bedroom property is more affordable than buying a median-priced home in 442 of 755 U.S. counties (59% of U.S. markets) analyzed for the report.

The report shows that renting is more affordable than buying a home in the nation's 18 most populated counties and in 37 of 40 counties with a population of 1 million or more (93%) — including Los Angeles and San Diego Counties, California. The report also indicates the areas where it is more affordable to buy a home than rent (Wayne County (Detroit), Michigan; Philadelphia County, Pennsylvania; and Cuyahoga County (Cleveland), Ohio), the least affordable markets for renting ( e.g Santa Cruz, San Benito, Sonoma (Santa Rosa area) and Marin (San Francisco area) Counties, California) or the most affordable markets for renting (e.g Roane County (Knoxville area), Tennessee; Peoria County, Illinois  etc).

The analysis incorporated recently released fair market rent data for 2019 from the U.S. Department of Housing and Urban Development, wage data from the Bureau of Labor Statistics along with public record sales deed data from ATTOM Data Solutions in 755 U.S. counties with sufficient home sales data.

Renting vs. Buying a House: Which is the Right Decision?

The answer to the rent vs. buy a home debate isn’t so cut and dried. Questions such as what you can afford, how long you plan to stay in the home, whether you want stability or flexibility, if you can afford to be responsible for home repairs/maintenance or what your financial, career and family goals are can influence your decision greatly. 

You should also carefully calculate your costs. Using Bankrate’s rent vs. buy calculator helps you break down some of the costs associated with renting and buying. Most rental properties require a security deposit, or monthly rent may include utilities. For homebuyers, one of the biggest ongoing costs of homeownership is the monthly mortgage payments. If you put less than 20 percent down, you may be required to purchase private mortgage insurance (PMI), which drives up your monthly payments, too.

Pros to buying are building equity and credit, more stability, possible tax benefits, improving or upgrading home to your taste. Cons are substantial money and paperwork up front requirements; losing money if home values decline; extra expenses beyond mortgage payments; rising home prices and low inventory in many markets; responsibility for repairs, remodeling.

Pros to renting are fewer upfront costs and paperwork, flexibility, no responsibility for maintenance, repairs, building credit (if your landlord reports rent payments to the credit bureaus), no property tax bills.

Cons are possible raise rent, having to move multiple times, not building equity, and no tax benefits.

Is it Cheaper to Rent Than Buy a House in LA?

With home prices in Los Angeles being the highest ever and rents many residents can’t afford, renting or buying has become a difficult choice to make. Curbed LA is trying to help with the decision which depends on a host of factors, including whether buyers are willing to make a large financial commitment or how much they have saved up. Even if they are eligible to contribute a lower down payment, it generally means higher monthly costs because of the private mortgage insurance required to pay until they build up to 20 percent equity in their home. 

One of the pros of buying is the current low interest rates, though prices are still high enough which makes the number of people capable of buying discouragingly small.

Another key factor that may affect the decision is how long you are going to live in the house. If it is for more than five years, you should consider buying as prices will be higher 10 years from now than they are today.

To help people make a decision, tools from Zillow and the New York Times offer some guidance on this question. The Zillow calculator determines the break-even point, when buying a house becomes cheaper than renting due to equity gained by the homeowner since the purchase.

Buying vs Renting in San Francisco: Which is Better?

Should you buy or rent a home in San Francisco? This debate has no right or wrong answer and depends on the individual and many factors. Investopedia is trying to bring along all the pros and cons to both options. As with any city, both buying and renting in SF come with many advantages and disadvantages. 

Buying a home is one of the biggest financial investments and it requires a lot of planning, saving, and determination, as well as certain costs to maintain and repair your home, pay your bills, plus the issue of property tax. But it can pay off in the end as after all, you are building equity. 

Though San Francisco is one of the most expensive cities in the U.S. for both renters and home buyers, renting is often cheaper than a mortgage payment, and you don't have to deal with repairs or other expenses, and many of your bills may be covered in your lease. 

The price-to-rent ratio provides clues about whether renting or buying makes better financial sense in a particular real estate market. The price-to-rent ratio in San Francisco is 24.6 meaning it’s better to rent. 

To Buy or Not 2020 in San Diego? That's the Question

The stats show that 54.4% of people are homeowners in San Diego, while 51.7% are renters. The average monthly mortgage payment is $2,475 while the average monthly rent is $1,743. The gross monthly income you need to afford to buy in San Diego is $12,680, while the gross monthly income needed to rent (30% of Income) is $5,281. 

Taylor R. Schulte, CFP thinks people underestimate the hassle of owning and the benefits of renting because they are hardwired to do so. Buying and renting can both be good options under the right circumstances. The most important thing to consider is planning: buying without a plan – and at the wrong time – can actually work against your financial goals.

According to SmartAsset, renting in San Diego tends to make more financial sense because it is less costly than buying. There are also other factors that are in favor of renting, such as flexibility, avoiding homeownership costs, liquidity, or building credit. 

On the other hand, benefits of buying include tax benefits, diversification, equity building and retirement planning. Besides, you are no longer at the mercy of a landlord who changes terms or, even worse, sells the property. With each mortgage payment, you also inch closer to owning the property outright.

Buying or Renting a House in Orange County, CA

Analyzing the advantages and disadvantages of both buying and renting a house in Southern California RJ Winberg from OC Real Estate came to the conclusion that purchasing real estate is a more prudent long-term financial decision than renting real estate in Southern California. 

From a cash-flow perspective, renting is easier than buying in Southern California since a monthly rent payment will be smaller than a monthly mortgage payment for the same house. But this is the case if you are living in the home short-term. But if you pay a mortgage for 30 years, that payment stays the same for 30 years before going away entirely. Rent, on the other hand, will almost certainly increase over time. It will definitely be much higher by year 30 with no end in sight. 

The most immediate advantage to buying a house is the tax benefits. A lot of the costs associated with purchasing a home are tax deductible, which means you won’t have to pay income taxes on the amount of those expenses. In the first several years of your mortgage, interest makes up a larger portion of your payment. This means that your tax deductions will be larger in the beginning and will gradually decrease over the next 30 years. 

Other buyers tend to focus on appreciation being the main advantage to buying vs renting. But this should really only be considered in the long-term. In the long-term real estate will generally increase in value, especially over a 30-year period. This happens because of population growth, economic growth, and of course, inflation. Land is a finite resource that increases in value as demand (population, economy, devaluation of money, etc.) grows.

Rent or Buy a Home in Los Angeles?

Choosing to rent or buy in Los Angeles: which is going to be better for your budget? Whether you’re buying or renting, Clever recommends having an experienced local real estate agent to help you get something that’s within your budget in an area that’s perfectly suited to your lifestyle. 

While it’s not quite as expensive as Manhattan or San Francisco, the cost of renting in Los Angeles is higher than in other parts of the country. Only about 15% of rents are under $1,500 per month. Most rent prices are going to cost you more than $2,000 a month. If you rent in East Hollywood, you’ll be paying just over $1,900 per month and in Century City the average rent is more than $3,500 per month. 

Across LA, you’ll find the average home valued at just over $685,000. The average home price in a neighborhood like Century City is almost twice what it is in the rest of the city, at more than $1.1 million dollars. But the housing stock has increased in recent years in LA. If they outpace demand, that turns the city into a buyer’s market. Additionally, California and the county of Los Angeles offer many programs to help you finance your first home. These are pros to buying a house rather than renting. 

2020 10 Reasons to Buy a California Home Rather Than Rent

Jonathan Lansner, the Orange County Register's business columnist, thinks it is a  good time to consider buying a California home despite the fact that California homeownership isn’t a reality for many, especially for singles and those with dings on their credit history and with down payments being a critical roadblock.

Here are 10 reasons he brings along:

  1. California continues to be a jobs-creation machine and more people are now hiring there. 

  2. Wages are rising.

  3. There is a record-breaking drop in mortgage rates..

  4. More lenders are willing to lend.

  5. 11 states topped the Golden State’s five-year appreciation rate, including popular destination for ex-Californians.

  6. California bargains may be rare, especially at lower price points, but there’s some supply to choose from: 34,456 listings in broker networks for Los Angeles, Orange, Riverside, and San Bernardino counties, according to ReportsOnHousing.

  7. Homebuilding is up 85% above the post-recession low and has run at the fastest rate in nine years. Plus, builders have had trouble selling lately, so price cuts, freebies, and ready-to-move-in homes are available.

  8. Buying is relatively more affordable: a California Association of Realtors’ index showed 47% of households statewide theoretically “qualify” to buy a starter home.

  9. It’s no longer a seller’s market, so house hunters have room to haggle.

  10. The cost of renting has risen. 

Should you Rent or Buy? The Big Question

Whenever you are looking to buy or rent, it is important to evaluate and decide on which particular property will meet your needs both financially and in terms of your standard of living. Per NMS Properties CEO Neil Shekhter, in order to get a better understanding of this situation, it is important to get the answer to five important questions that people must ask whenever they are looking to buy or rent a house. 

1. How long are you planning to stay at your current home? The longer you stay at a particular house (more than three years), the more you can spread out the buying/selling costs. 

2. Does the Price of Housing Always Go Up? When you are looking to buy a house, consider your financial situation and how it would be if your house went up in value by a very small amount or if it wouldn't go up in value at all.

3. Are You Throwing Money Away When You Rent a Home? It is a good idea to evaluate renting in comparison to the costs of ownership.

4. How Much Money Will You Save on Taxes? It is likely that a homeowner will not save any money when claiming the home mortgage interest deduction nor will they save money on their taxes.

5. Are You Making a Legitimate Comparison of Your Housing Options? You should focus on the impact both buying and renting will have on your future long term wealth.

Planning to be a Renter for Life Rather Than Buying

Melanie Lockert from Business Insider rents a one-bedroom apartment in Los Angeles and has no plans to buy a home because LA has a high cost of living that makes buying unaffordable, and renting fits her need for flexibility and convenience. 

According to data from a real-estate site, a comparable one-bedroom condo in her ZIP code is $549,000 with an estimated mortgage of $2,730 a month. That's more than $1,000 a month more than her monthly rent which makes renting more affordable.

Renting allows to keep all options open when it comes to where to live. When you want to choose somewhere more affordable, a 30-day notice is enough to leave your rented home while you’d have to put your home on the market to sell or find a renter. Renting is also low-maintenance.

Though these are pros to renting, whatever you decide, there's no wrong answer. You should consider your finances, goals, and lifestyle, and think big picture. 

Where in the Country Does it Make More Sense to Buy vs Rent?

To help families determine where it makes more sense to buy vs. rent and vice versa, online life insurance agency Haven Life has tried to find out which cities in the U.S. have the highest and lowest price-to-rent ratios. They used Trulia's price-to-rent ratio of 15, in which under 15 indicates it's better to buy, and over 15 shows it's smarter to rent. Then the insurer compared 200 of the most populous cities around the country, using the most up-to-date data from Zillow.

An overwhelming proportion of cities with the highest price-to-rent ratios are in California—none of which have ratios that are considered to be favorable for buyers. On the other hand, most cities with the lowest price-to-rent ratios are in the South or Midwest. In these cities, buying a home can be much more cost-effective than renting.

Haven Life also compiled a list of the price-to-rent ratios of the top 25 cities by population and how they compare to the national average. The top 5 cities include New York, NY, with a price-to-rent ratio of 24.3  which makes the city more of a renter’s market than a buyer’s market; Los Angeles, CA, with a price-to-rent ratio of 18.53; Chicago, IL, with a price-to-rent ratio of 11.33, which makes it slightly more favorable for buying than renting, Houston, TX, with a price-to-rent ratio of 9.83 and Phoenix, AZ, with a price-to-rent ratio of 14.33. 

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