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Rent or buy? In Whatcom County, it may take longer to break even

A new report suggests that for some people in Whatcom County, it makes more financial sense to rent a home rather than buy if they plan on being here less than four years.
A new report suggests that for some people in Whatcom County, it makes more financial sense to rent a home rather than buy if they plan on being here less than four years. AP

A new report suggests that for some people in Whatcom County, it makes more financial sense to rent a home rather than buy if they plan on being here less than four years.

The online real estate database company Zillow recently came out with a report looking at the “breakeven horizon” of renting versus buying a home in metro areas across the U.S. In Whatcom County, you’d have to live here for 3.6 years before it makes more financial sense to buy a house. Nationally, the median breakeven point is 2.1 years, according to the report.

Zillow’s breakeven formula is based on several factors, including how fast rents and home values are growing, expected appreciation going forward and costs associated with owning or renting a home in a given area, said Aaron Terrazas, a senior economist at the company.

Bellingham’s breakeven horizon is shorter than other Northwest college towns like Eugene and Walla Walla because of very strong home value appreciation here, Terrazas said.

Home values in Whatcom County are a bit higher than median rent, which won’t come as a surprise to potential homebuyers who have suffered sticker shock when looking at the local market. Zillow's price-to-rent ratio compares home prices to annual rent for comparable homes; dividing the average list price by the average yearly rent price gives you the ratio.

In the priciest communities like San Francisco and San Jose, the price-to-rent ratios are in the 20-25 range, while the least expensive communities like Laredo, Texas and Syracuse, N.Y. have a ratio in the 7-9 range, Terrazas said.

Bellingham’s ratio checked in at 16.2, which is higher than Seattle’s 15.9. While Seattle has higher home values, it also has rents rising even more rapidly than Bellingham, which impacts the ratio.

Since home values and rents are rising so quickly in Seattle, its breakeven horizon for renting versus buying is down to 2.3 years.

“When rents and home values rise, it often makes sense to buy as soon as possible in order to gain an equity stake in a rapidly appreciating asset. Of course, coming up with the ever-growing down payment is a big challenge,” Terrazas said.

$337,000 Median home value for a Bellingham home in May, up 9.3 percent compared to a year ago.

Finances are only one factor when it comes to buying a house.

“It’s important to remember that these numbers are just guidelines. Buying a house is an individual decision, with broad personal and financial implications and no small amount of emotion,” said Skylar Olsen, a senior economist for Zillow in a post accompanying the data. “Knowing how long, even at the median, it takes for buying to become a financially wiser move than renting can remove one piece of guesswork.”

With apartment vacancies remaining low in recent years, rents have steadily risen in Bellingham. According to Zillow, the median rent in May was $1,549 a month in Whatcom County, up 6.8 percent compared to a year ago. Zillow also estimates the May median home value at $337,000 for Whatcom County, up 9.3 percent compared to a year earlier.

Dave Gallagher: 360-715-2269, @BhamHeraldBiz

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