When deciding whether or not to buy or rent a home, purchasing a home is more favorable and affordable in many of today's housing markets, according to Zillow.
After buying a home, the breakeven point of the purchase becomes the next important factor to consider. The breakeven point is the price level at which the market price of a security is equal to the original cost.
Zillow's Breakeven Horizon, which examines how long home buyers need to stay in a home before buying it makes more financial sense than renting it, for the first quarter of 2016 was about one year and eight months, approximately three months shorter than it was at the end of 2015. Zillow reported that in more than 80 percent of metro markets nationwide, and 72 of the largest 100, homebuyers can breakeven on buying a home in less than two years.
The report identified markets where job market and income data are promising and homeownership is not just financially advantageous but also more likely to be financially possible.
At the top of the list for homeownership is San Antonio, Texas, where buyers can breakeven on their purchase in one year and four months, income growth is at 4.1 percent, and employment growth is at 2.8 percent.
Following San Antonio, is Nashville, Tennessee and Tampa, Florida with breakeven horizons of 1.5 years and 1.7 years, respectively.
"All places on this list are great for those looking to buy a home and settle down," said Zillow Chief Economist Dr. Svenja Gudell. "Not only do they have a strong labor market, but a home purchase in these markets makes a lot of financial sense. Be careful, though, because this assumes you can qualify for a mortgage, have a down-payment saved up and, most importantly, can find a home for sale in your price range. Simply put, buying a home in many of these markets is not for the faint of heart."
Of the top 50 markets analyzed by Zillow, Memphis, Tennessee had the shortest breakeven horizon of 1 year, while Indianapolis and Dallas-Fort Worth followed with breakeven horizons of 1.2 years and 1.3 years, respectively. Metros with the longest breakeven horizon in the first quarter were San Diego, California and Washington, District of Columbia (3 years and 7 months each); Los Angeles, California (3 years and 6 months); and San Jose, California (3 years and 4 months).
"Over the most recent quarter, Breakeven Horizons have shortened across much of the country, driven by the combination of falling price-to-rent ratios and an uptick in expected home value appreciation over the next year, Zillow said in the report. "In most large metros, rent appreciation outpaced home value appreciation, pushing price-to-rent ratios downward – particularly in the Northeast. At the same time, home value appreciation has accelerated in some metros – especially those where inventory of for-sale homes is tight–helping homeowners accumulate equity more quickly and also shortening Breakeven Horizons."