Agent's Perspective - Buying vs. Renting in the Bay Area: Assessing the Options

It’s hard to determine if renting or buying makes the most sense in the Bay Area - as both options are pricey. San Francisco rentals are among the most expensive in the nation: the median rent for a 2-bedroom apartment is $3,442 per month according to the national apartment search website RentCafé.com, which adds up to $41,304 annually. The rent burden is especially heavy on younger generations, with millennials spending half their income on rent. 

San Francisco is also expensive for those looking to buy. The median home sales price has edged up to a staggering $1.6 million. Per a California Association of Realtors (C.A.R.) Housing Affordability Report released earlier this year the recommended salary needed to buy a home in San Francisco without potential financial peril rose to an astounding $333,000+, taxes not included (up from $267,130 only a year ago). C.A.R. calculated this figure by assuming a 20% down payment, the current median interest rate, assuming a 30-year fixed mortgage, and keeping housing payments below 30% of household income. 

Nationally statistics show buying a home is 26.3% cheaper than renting. In San Francisco however, one of the nation’s priciest metros, the savings from renting this year per Trulia amounted to 5.8%, primarily due to rents remaining flat or falling by 3% - compared to home values which have risen by 14.2%. 

Despite affordability challenges, California renters continue to hold homeownership in high regard and aspire to purchase a home eventually according to a consumer survey released by C.A.R. this month. As per C.A.R.’s 2018 State of California Consumer Survey, which examines the attitudes and behaviors of real estate consumers, it was found that half of California renters rated home ownership as very important or extremely important, and 4 out of 5 renters want to own a home someday. Survey highlights noted that nearly half (45%) of renters said they would purchase a home if they got a new job, a raise or promotion, while another 40% said that they would be motivated to buy a home if they got married or were starting a family. 

While many renters strive for homeownership they perceive that they are not in a financial position to become a homeowner or don’t have the financial knowledge to do so. 

Only 4 in 10 renters are familiar with the credit and loan criteria needed to purchase a home. Further hindering renters from becoming homeowners, they don’t know how much down payment is required, with 14% under the impression that more than a 50% down payment is needed for a home purchase. Nearly 40% of California renters believe that more than 20% is required to become a homeowner. Per the C.A.R. article ‘this misconception results in many renters delaying their home purchase or possibly even giving up on the dream of homeownership”.

Check out Trulia’s Buy or Rent Calculator  that helps you decide if it’s better to rent or buy by comparing the total cost of each. Users can customize results by inputting their targeted monthly rent, target home price, length of time in the home, income tax rate & mortgage rate. Modifying any parameter can influence the outcome and tip the scale from rent to buy or vice versa. Assume, for example, a targeted monthly rent of $4,500, a targeted median home price of $1.6 million, a 25% income tax rate and a 4.25% mortgage rate. Buying becomes cheaper than renting after six years. The lower the mortgage interest rate, the sooner buying becomes a better option.