How renters could save vs. owning over 5 years

Renting in California, as costly as it is, is a far better deal today than being a homebuyer, saving an estimated $112,000 over the next five years for the typical tenant versus the new owners of a midpriced residence.

Numerous reasons exist to own a home, even in today's tough market. But too many rentversus-buy calculations or homebuying affordability metrics don't represent reality.

My trusty spreadsheet reviewed rents and homeownership costs in 50 big metro areas across the nation compiled by Zillow — including a half-dozen in California. The goal was to find the true cost of the roof above one's head in a span of five years.

Topline

The typical Californian renter in the big six metro areas can expect to pay an average $3,190 a month to the landlord, assuming mid-2022 rents increase at a 4% annual rate.

Meanwhile, a California homebuyer can expect to spend on average $5,054 a month in the same five-year period. This expense includes making house payments on a 5.5% fixed-rate, no-moneydown mortgage; paying property taxes at a 1.5% annual rate; paying down 8% of the mortgage balance, and tax savings worth an assumed 20% of interest and taxes paid.

The result is a $1,863 savings per month for renters — or $112,000 extra paid by owners over five years.

If this math does not hit home hard enough, so to speak, consider that a hypothetical California buyer in mid-2022 needs 17% appreciation — after 6% closing costs — to sell five years from now and break even versus renting.

Locally speaking

The state's six big metros have a wide range of results in this rent-versus-buy math. Let's examine them by the size of a renter's expected savings …

SAN JOSE »

$3,641 a month spent on rent over five years, No. 1 among the 50 U.S. metros. A homeowner will pay $8,317 monthly in net house expenses, also No. 1, for a house that cost $1.7 million. That's $4,676-a-month renter savings or $280,500 over five years. So home prices must appreciate 23% over five years to break even.

SAN FRANCISCO »

$3,551 rent, No. 2 nationally, versus $7,291 on a house, No. 2, for a $1.5 million residence. That's $3,739 a month saved by renters or $224,400 over five years. So home prices must appreciate 22% over five years to break even.

LOS ANGELES-ORANGE COUNTY »

$3,229 rent, No. 5 nationally versus $4,546 on a house, No. 3, for a $948,000 residence. That's $1,317