This Breakeven Horizon Chart compares how long it takes to breakeven on buying rather than renting. This analysis compares home ownership costs like taxes, interest rates and acquisition costs — along with home equity growth in healthy housing markets. In California, the average breakeven horizon is about 3.3 years. Since more of the homebuyer’s monthly payments will go toward interest and less toward principal, their investment will take longer to accumulate equity.
Areas that are experiencing the most rapid home price increases tend to have the highest breakeven horizons — and also tend to be located along the coast. The further inland you go, home purchases tend to pay off the quickest since homes are relatively cheap to begin with.
If you’re a homebuyer, my advice is to buy in 2016, before interest rates increase. Not only will you be able to gain equity more quickly with a low rate, but you will also qualify for a larger principal amount.