Rent vs. buy: LA-Orange County renters might save $105,000 over 5 years

Why so few home sales in Los Angeles and Orange counties?

Well, local renters enjoy the nation’s fourth-largest savings between what landlords charge and the cost of financing a house purchase.

My trusty spreadsheet reviewed a study by Zillow that estimated everyday rent prices for single-family homes compared to monthly mortgage payments, assuming 10% down. The study looked at April conditions for 50 large U.S. metropolitan areas, including six California markets.

Of course, renting in the metro comprising Los Angeles and Orange counties remains a financial challenge. Leasing of a single-family house ran $4,462 a month, according to Zillow’s math. That’s the second-highest cost among the 50 markets.

But buying is far more painful to the wallet. Zillow estimates buying the $966,700 typical home requires a $6,315 house payment. That’s the third-highest nationally.

Still, the rent vs.-buy math translates to a $1,853 monthly savings to the tenant, No. 4 of the 50. Yes, nearly two grand.

My spreadsheet looked at this theoretical renting advantage with a longer-term lens: Over five years, assuming that renting’s savings are cut 3% a year as the landlord raises prices. It adds up to roughly $105,000 cheaper to rent.

Now, mortgage payments and property taxes could lower a buyer’s income taxes. Of course, then there’s potential increases in property taxes, insurance and homeowner association fees a buyer must account for, too.

And please do not forget the 10% down used to get a reduced mortgage payment in this calculation. That’s a severe house hunter burden that is often overlooked in rent vs. buy math. For Los Angeles-Orange County, it’s $96,700 down.

Also, homeownership fans would say a buyer could see $154,000 of appreciation if home prices increased at a 3% a year pace in the next five years.

Yet no matter how the rent vs. buy calculations are done, the cash-flow gap between rents and house payments helps explain the locally slow homebuying pace.

Elsewhere

In the five other California markets, the five-year savings for renters were …

San Jose: $350,000 savings (No. 1 among the 50 markets) from $4,508 rent (No. 1) vs. $10,706 on house payment (No. 1).

San Francisco: $198,000 savings (No. 2) from $4,065 rent (No. 5) vs. $7,564 payments (No. 2).

San Diego: $111,000 savings (No. 3) from $4,177 rent (No. 3) vs. $6,133 payments (No. 4).

Sacramento: $58,000 savings (No. 7) from $2,800 rent (No. 12) vs. $3,833 payments (No. 9).

Inland Empire: $43,000 savings (No. 11) from $3,085 rent (No. 9) vs. $3,838 payments (No. 7).

It’s a far different picture nationally.

A U.S. renter can expect just $5,000 savings over five years from $2,296 rent compared to $2,388 house payments.

And it was cheaper to buy than rent in 13 of the 50 U.S. big metro areas: Indianapolis, Hartford, San Antonio, Buffalo, Cincinnati, Cleveland, Memphis, Tampa, Houston, Pittsburgh, New Orleans, Chicago, and Miami.