I've happened upon several articles in the last few months that discuss how many years it takes to break even on a home purchased under current market conditions. The consensus is: it will take a lot longer than it used to.
According to the articles, the elongation is largely due to high prices coupled with relatively high lending costs and an assumption that appreciation rates will regress to the mean. Also, I’ve read and listened to a few sources about cost to rent v. cost to buy ratios being out of whack in many markets. The cost to own is just too high relative to cost to rent.
I casually follow a few real estate markets and would tend to agree on both counts. In one particular market, I have found it not uncommon for the monthly cost to buy to be about 70% higher than the monthly cost to rent, even with a 20% down payment! That’s crazy. Many homebuyers don’t have 20% to put down so their ratios will be even worse. A real estate investor putting 25% down would have slightly better ratios but still would be running a major monthly deficit; i.e. would NOT buy in that particular market. As to length of time to break even, whomever buys in such a market better be prepared to hold for a long time.
For break even analysis, I really enjoy using this Rent vs Buy Calculator on nerdwallet.com. You can play around with myriad variables and try it out for a market that interests you. Enjoy!
With Love,
P. Gustav Mueller, author of The Present