Renting vs. Buying: The Roommate Factor
One key to a healthy economy, as the Mortgage Bankers Association and others have pointed out, is household formation.
For many Millennials, homeownership is not yet an option. So for those eager to get out of the house, renting is ideal–and for those who can’t rent on their own, a roommate helps keep costs down.
Trulia, San Francisco, notes it’s a better deal to buy than rent in America’s largest housing markets–and for much of that time it hasn’t been close. But does the equation change for renters who share their rent with a roommate? The answer: it depends a lot on where you live.
In its monthly Rent vs. Buy blog, Trulia examined the discount of renting with a roommate and what that means in terms whether or not buying a starter home is a better financial decision.
“Roommates matter,” Trulia said. “If you have a roommate you are better off renting than buying your first home alone in places like San Jose, Calif., San Francisco and Austin, Texas. In San Jose you can save 21.9% by splitting the rent instead of buying a starter home.”
Trulia noted that while most people assume a scenario in which a person is a single renter, “truth is that those who rent often have a roommate.” Trulia said more than 20% of millennials live with a roommate, representing a 115-year high as of 2015.
“Home seekers transitioning from renting to buying will be purchasing a home for the first time and will likely be on the hunt for more affordable starter homes,” Trulia said.
In assessing the renting versus buying equation for those deciding between renting with a roommate or taking the plunge on a starter home, Trulia said the decision to rent or buy hinges on staying in the same place for seven years.
The report said renting with a roommate is overwhelmingly the better option over buying a starter home in the nation’s two most expensive markets. In San Francisco and San Jose, Calif. the savings from sharing a rental compared to buying are 16.5% and 21.9%, respectively. Austin, Texas, Sacramento and Ventura County, Calif., are other metro areas where renting with others outweighs buying, but just barely.
“This is the best time to split the rent instead of buying in San Jose,” Trulia said. “The savings from renting with a roommate over buying a starter home are the highest they have been in five years, representing a 22.7 percentage point advantage over this option in 2012.”
On the flip side, Detroit sees the greatest savings (57%) from buying even when splitting the rent, and buying a starter home in West Palm Beach, Fla., is a bargain over renting with a roommate, where a buyer could save 52.2%. Across the largest 100 metros buying outweighs renting, but flat or declining rents and slightly higher mortgage interest rates since last year narrowed the savings from buying. The same metros that favor renting with a roommate over buying also have the smallest margins in terms of the traditional rent versus buy equation. In San Jose, Calif. buying edges renting by 6.5%, down from 18.6% last year. Pricey San Francisco is close behind with buying having a 14.3% financial advantage over renting, also a decrease from 25.9% from last fall.
“Nationally, buying is better than renting no matter what your living arrangement is,” Trulia said. “But the benefits of the conventional rent versus buy tradeoff favors buying by a significant margin: it’s 37.4% cheaper to buy a median-priced home than to rent one, but that number falls to just 25.3% if one considers the scenario of buying a starter home rather than renting with a roommate. In some markets, however we see that shacking up with a roommate to save on rent will save you more than buying a starter home.”
The blog can be accessed at https://www.trulia.com/blog/.
