Renting vs. Buying a Home in California, 2017 Update

Is it cheaper to rent or buy a home in California in 2017? This is a common question among renters who are thinking of buying a house someday. And we have a new renting-versus-buying breakdown that you might find interesting.

At a glance: In many California cities, home buyers could afford the monthly payments on a house for about the same as what they would pay in rent, or even less. San Francisco is one notable exception.

Renting vs. Buying a Home in California: A 2017 Analysis

A new study published recently by the real estate data company Zillow revealed that renters in California and other parts of the country could buy a home without increasing their monthly housing costs. This may come as a surprise to some California renters, who feel that owning a home is beyond their reach. As it turns out, buying a house could be well within reach.

Nationwide, the median rent is currently more expensive than the monthly mortgage payments for a median-price home. In fact, a typical renter in the U.S. and some parts of California could buy a house nearly 50% more expensive than the median valued home, while keeping the same monthly housing budget (according to Zillow).

Of course, there are exceptions to this rule, and San Francisco is one of them. This latest study showed that San Francisco, California was “one of the only cities in the country where a monthly rental payment would not cover the costs of owning the median valued home.” That’s because the median home price for that city has risen above $1 million.

But in other cities and towns across California, renters could buy a house without a significant increase in their monthly housing costs.

Take San Diego, for Example

San Diego is a good example of how the monthly housing costs could be lower for buyers than renters. Here’s a breakdown based on current rental and housing trends in 2017:

• The Zillow Rent Index for San Diego (an estimate of the median monthly rent payment for the city) is currently around $2,500.
• The median home price in San Diego was around $560,000, as of May 2017.
• If we assume for a 10% down payment, that would equal a mortgage loan amount of $504,000.
• At current average interest rates, the monthly payments on a 30-year fixed mortgage for that amount would come to $2,415. (We’ve excluded property taxes and insurance for simplicity.)
• So the mortgage payment is less than the rent index for San Diego.

That’s just one example. Many other cities in California work out similarly, in terms of renting versus buying in 2017.

Related: The cost of buying in California

According to Zillow’s Chief Economist, Dr. Svenja Gudell: “Renters hesitant to enter the home buying market for fear of not being able to find an affordable home should be encouraged to discover they may have more options than they thought.”

Of course, this is just a financial comparison between renting and buying in California, during 2017. There are other considerations as well, including lifestyle, maintenance, and how long you plan to stay put. But from a monthly cost perspective, buying can be cheaper than renting in many California cities.

The Down Payment Factor

The down payment is another important factor here. When weighing the pros and cons of renting versus buying a home in California, you can’t just look at the monthly costs. You must also consider the upfront costs associated with purchasing a house, and the down payment is chief among them.

The perceived hurdle of making a down payment is something that holds a lot of renters back from buying. They assume they can’t afford the down payment needed to buy a house in California, even though their monthly payments might be equal to or lower than renting.

Related: Low down payment mortgages

But renters might be pleasantly surprised here as well. Current mortgage programs allow borrowers to put down as little as 3% of the purchase price — and the money could be gifted from someone else, like a family member. So that hurdle might not be as high as you think.

The bottom line: If you’re considering the rent-versus-buy question in California, you might be surprised by what you find. In many cities in the state, and across the country, the monthly costs of owning can be equal to or less than renting.