Does It Make More Sense to Rent or Buy a Home in L.A.?
Even at exorbitant prices — the median home listing on the Westside is now $1.2 million — putting your cash into real estate is usually a good investment in Southern California. Prices go up, and you win — if you can afford to play the game.
But a new analysis from real estate listings site Zillow finds that in the Greater Los Angeles market, which includes Orange County, it takes more than four years, on average, for a home purchase to make more financial sense than renting.
According to Zillow's "Breakeven Horizon" report, released this week, that's the third longest wait in America, behind the San Jose and San Francisco metro areas. The site looked at the 35 largest markets for the last quarter of 2016 and calculated the "number of years after which buying is more financially advantageous than renting."
"Among the biggest U.S. metros, it takes the longest to break even on a home purchase in large California markets," according to a statement from Zillow. "In San Jose, San Francisco, Los Angeles and San Diego, the 'Breakeven Horizon' is at least four years."
Part of the reason for that, according to the site, are the high purchase prices in those markets: Greater L.A. also happens to have the third-highest median home price (again, behind San Jose and San Fran); paying off the higher fees that come with larger loans takes time.
Additionally, while Greater L.A. home prices are expected to increase at a faster annual rate than those two more expensive markets, its 2.37 percent anticipated yearly growth trails the expected national average of 3.52 percent.
"As home value appreciation moderates, it will take them longer to break even than in past years," Zillow chief economist Svenja Gudell said in a statement.
If you want to get a quicker return on your real estate investment, the West Coast is not the place to be. "Buyers will break even fastest in the South and Midwest," according to the site. The survey found that in Indianapolis, Orlando, Detroit, Atlanta and Tampa, it takes less than a year and a half for it to make more sense to buy than rent.
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