Buyer’s remorse doesn’t limit itself to clothing, cars and lavish dinners. For renters in America, their biggest shared regret is choosing to lease instead of buying their first home. So, why don’t tenants transition into homeownership?
According to a recent Trulia survey on the effects of the real estate market rebound, most Americans believe housing costs have become less affordable since 2012. About a quarter of people who earn $100,000 or more per year assume they could not afford to buy a home under the currently tight home buying conditions. Despite these supposed restrictions, the general outlook on homeownership remains positive.
Some renters may be surprised to learn that when it comes to cost savings, buying beats renting by a landslide (in most cases). In the Los Angeles metro, for example, it’s 29 percent cheaper to buy than it is to rent when all costs are averaged out over time. The Rent vs. Buy gap factors in all costs associated with both leasing (monthly rent, insurance, security deposit) and buying (down payment, mortgage, insurance, taxes and deductions).
To elucidate further, consider the long-term cost differences between renting and buying in three popular Los Angeles neighborhoods:
West Los Angeles
According to Trulia’s market trends, the current median rent in West Los Angeles is a steep $4,575 per month. Meanwhile, the median sales price is $996,750 per month. Per Trulia’s Rent vs. Buy calculator, buying a home in West Los Angeles is 28 percent cheaper than renting in West Los Angeles. When averaged over time, renters in West L.A. pay $4,409 per month while homeowners face $3,153 per month in monthly expenses.
The median home in Echo Park sells for $835,000 while nearby apartments rent for $3,700 per month. Using the same parameters listed above with the current median prices, buying a home in Echo Park is 25 percent cheaper than renting in the same neighborhood. Monthly rental costs in Echo Park average out to approximately $3,556 per month while owning takes $2,664 per month when aggregated over time.
As one of the most expensive rental markets in the Los Angeles area, the current median rent in Westwood is a lofty $7,295 per month, up from $6,550 one year ago. Meanwhile, the median sales price on homes in Westwood is $960,000. This makes buying a Westwood home 57 percent cheaper than renting one. The costs of renting in Westwood averages out to $7,036 per month over time, while owning a home in Westwood requires a more manageable $3,031 each month.
Evidently, buying a home is a universal goal among Americans. Perhaps the biggest deterrence is a fear of remorse, thanks to the Great Recession, and a perceived lack of home buying affordability. However, once renters overcome the initial down payment hurdle, buying a home in the Los Angeles area appears to be the more economical route after all.