5 Housing Markets With the Worst Break-Even Periods

BOSTON ( TheStreet) -- Experts have long advised U.S. consumers who plan to stay put for a while to buy homes instead of renting, but Zillow.com ( Z) found recently that the "break-even point" between buying and leasing varies widely from city to city.

"Housing markets are very different in different parts of the country," says economist Svenja Gudell of Zillow, a market-tracking site that estimated break-evens for hundreds of U.S. locales.

Break-even periods represent the point at which consumers can expect to spend the same amount on mortgage payments and other expenses (minus any capital gains) that they'd fork over for rent.

Buying makes more sense than renting if you expect to stay in a home longer than the break-even point, but leasing is the better option if you don't.

Zillow found that while the average U.S. community has a 3.1-year break-even period, break-evens actually range from one year in Memphis, Tenn.'s Shelby Forest-Fraser neighborhood to more than two decades in tony Virginia Beach, Va.'s Sandbridge section.

Gudell says cities with the longest break-even periods typically didn't see home prices tumble as badly during the housing bust as America's hardest-hit locales did. As a result, people in such markets still face such high home prices that it takes years of living in one place before buying makes more sense than renting.

"The rents are high in these cities, but the home values are even more high," Gudell says. "So it takes longer to make your money back if you buy."

Here's a look at the five markets Zillow found have the longest break-even periods among America's 30 largest cities. (Click here for a rundown of cities with the shortest break-evens.)

Zillow calculated break-even points by estimating each community's median home price, median rent, typical property taxes, expected future price appreciation and other factors. All figures are as of March 31 and refer to Zillow's estimates of prices and rents for all houses, condos and co-ops (including those not on the market) in each metro area.

Fifth-longest break-even period: Seattle
Break-even point: 3.6 years

Gudell says it takes a long time for Seattle homebuyers to break even because the Emerald City's property values "are relatively high compared to rents" -- no easy task in a metro area where median rents run a hefty $1,633 a month.

Still, the expert says Seattle's $280,100 median property value makes buying a place an even-costlier option.

That's true even though Seattle homeowners are seeing generous price appreciation these days. Zillow estimates local property values rose 10.1% over the past year and should gain another 7.8% by March 2014.

Fourth-longest break-even period: Philadelphia
Break-even point: 3.61 years

Don't expect Philadelphia's housing market to show you much brotherly love if you buy a place instead of renting and move again within a few years.

That's because Philly is seeing paltry home-price gains, which means property buyers need to stay put for a while to break even.

Zillow estimates Philly home values only rose 0.3% over the past year to reach a $180,000 median and will only inch up another 0.2% by March 2014.

Gudell says that's not enough to make buying a place cheaper in the short term than leasing, even though Philadelphians face a high $1,488 median monthly rent.

Third-longest break-even period: San Jose, Calif.
Break-even point: 3.7 years

Property values in and around Silicon Valley's unofficial capital are already so high that breaking even on a purchase will take years despite the fact homes there are appreciating rapidly.

Zillow calculates that San Jose median property prices gained 22.1% over the past year, to $676,100, and will add another 9.7% by March 2014.

Still, Gudell says buying a San Jose home already costs so much that leasing makes more sense in the short term. "Home-value appreciation will make up a little bit for the high property prices, but not enough to give buyers short break-even points," she says.

Of course, renting a San Jose place isn't exactly cheap, either. Median rents there run a hefty $2,675 per month.

Second-longest break-even period: Boston
Break-even point: 4.1 years

Boston has a long break-even point for homebuying because of high property prices and low expected future appreciation.

Zillow estimates the median Boston residence costs a hefty $321,700 but will appreciate only 0.7% over the next year. "The low appreciation rate makes a big difference in terms of regaining some of the high prices today's buyers will pay," Gudell says.

That said, leasing a Boston place is also expensive. Zillow estimates median rents in the metro area run $1,991 a month.

Longest break-even period: New York City
Break-even point: 5.2 years

You'll have to live in one place a lot longer than a New York Minute if you expect buying property in America's largest city to make more sense than renting.

Gudell says that's because the Big Apple has high property taxes, hefty median property values ($343,700) and a poor outlook for price appreciation (a 1.2% drop predicted for the next year). "All of that gives you a very long break-even point," she says.

But again, New York rentals are no bargain, either. The typical Gotham property listed for rent on Zillow.com costs $2,700 a month.

It's also worth noting that while Zillow's 5.2-year break-even estimate applies to the New York metro area as a whole, lots of individual neighborhoods have much longer payback periods.

For instance, it'll take an estimated 11.9 years to break even if you buy a place in Manhattan's tony Carnegie Hill section.

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