Does buying a Chicago home still offer a better value than renting? Let’s consider what’s changed in recent months. According to Illinois REALTORS®, Chicago Metro area home prices increased by an average of 3.9% on a year-over-year basis*. Meanwhile, mortgage interest rates started climbing last summer, and they’re not likely to turn back soon.
But as discouraging as this may initially seem for first-time home buyers, paying rent never gets cheaper! Rents can, and generally will, rise every year according to prevailing market conditions, housing demand, economic factors and landlord whimsy. As we said in a blog post about Chicago homeowners being financially head of renters, owning a home with a fixed-rate mortgage protects you against housing cost inflation.
The most recent example of buying vs. renting comes to us from SmartAsset. In their comparisons, they use the following criteria:
- Total costs of buying a typical home
- Average home prices
- Total costs of renting a typical rental property
- Average monthly rents
- Household income of $100,000
- Home purchase down payment of 20%
- Fixed-rate mortgage rate of 4.5%
When SmartAsset boiled down the numbers for large metropolitan areas of 200,000 residents or more, the market of Chicago-Naperville-Arlington Heights stood among the better deals for home buyers. Average rents in this area are going for $1,667 a month. Conversely, if you bought an average-priced home of $336,422, you’d be looking at a principal and interest payment of $1,279. This puts you dollars ahead in cash flow every month from the get-go. You’d basically break even on your home purchase costs in 2 years and 7 months.
Of course, not everyone will have a 20% down payment. Or have $100,000 in annual household income to afford the very broad “average” home price in the example. Mortgage interest rates have also moved above 4.5% since this study was performed. In short, your personal break-even point on home buying could be better or worse than 2.7 years.
Here’s an easy take-away, though. There is no break-even point in renting.
While these studies are interesting, we encourage you to do some comparisons for yourself! Take a look at Chicago area home prices and mortgage rate trends. Also, consider your long-range goals and life plans. Home ownership makes financial sense in many instances, but it isn’t everyone’s cup of tea. The choices are yours to make!
StartingPoint Realty – helping first-time home buyers!
StartingPoint Realty proudly serves first-time home buyers throughout Chicago and the Northwest suburbs. We provide complete education and guidance during the entire home buying process! Attend a free home buying seminar to begin your path to home ownership!
We provide great resources to help you become a successful home buyer! Check out our list of home buyer assistance programs on our website!
Always feel welcome to contact us for help with your Chicago home buying questions!
Ryan Gable Broker/CEO Starting Point Realty
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*Statistical Chicago Metro home price comparison based on September 2018 vs. September 2017 year-over-year data, as reported by Illinois REALTORS®.