Zillow: Homeownership ‘Break-Even’ Point Getting Longer

As a mortgage industry employee, you know the benefits of homeownership. You know that a home is the most significant investment a person makes in their lifetime. And you know that from an investment standpoint, in most cases buying a home pays for itself over the long term.

But a new report from Zillow Inc., Seattle, suggests that home buyers, particularly in more expensive markets, are waiting longer than ever to see that “break-even” point. The company’s Q4 Breakeven Horizon report said the national breakeven horizon grew to just under two years, nearly three weeks longer than a year ago.

And for more expensive markets, such as those in the Bay Area, Zillow said it takes at least one and a half years longer to break even on buying a home than it did a year ago. Buyers in the largest U.S. markets would break even on a home fastest in Indianapolis (1 year, 4 months), and take the longest to break even in San Jose (5 years, 2 months).

Zillow Chief Economist Svenja Gudell said when home values grow quickly, as they have over the past several years, home equity also accumulates faster, helping to offset and eventually recoup the large upfront costs of buying a home more quickly. Zillow said U.S. home value growth accelerated at the end of 2016, ending the year at a 6.8 percent annual appreciation rate. At the same time, rent appreciation slowed significantly, only growing at 1.5 percent annually.

But home value appreciation is slowing down in some places, especially expensive areas such as Silicon Valley and the San Francisco Bay Area. This makes building home equity a slower process. “These shifting dynamics can make the question of whether to buy or rent less clear in many markets,” Gudell said.

The report noted home value appreciation isn’t slowing everywhere. For example, home values in the Washington, D.C. metro are expected to grow at a faster pace over the next year after staying largely flat recently, leading to a shorter Breakeven Horizon. Buyers in this area can now expect to break even after 3.5 years.

Among the biggest U.S. metros, it takes the longest to break even on a home purchase in large California markets. In San Jose, San Francisco, Los Angeles and San Diego, the Breakeven Horizon is at least four years. Buyers will break even fastest in the South and Midwest. In Indianapolis, Orlando, Detroit, Atlanta and Tampa, it takes less than 1.5 years to break even on a home.