Rent vs. Buy a Home in Portland – 2019 Update
The biggest question we get from a potential first time home buyer is: Which is more affordable, renting or buying a home in Portland?
Affordability is a multi-tiered puzzle. Potential Portland home buyers aren’t just impacted by their own finances — mortgage rates, property tax rates, home maintenance costs, and potential lifestyle changes brought on by the move (for example, being able to go down to one car and take public transit) all play a part.
Still, if you suspect that you’re paying more in rent than you would for a mortgage in a similar or better home, the first thing you’ll want to look at is what the total cost is for a home in Portland. In other words, what are Portland home values doing in 2019? Answering that question goes a long way toward solving the rent-vs-buy affordability puzzle.
Portland Home Values Edge Upward
Yes, there is still growth in the Portland real estate market, but it’s slowed down quite a bit from three or four years ago. According to the most recent RMLS data, the first half of 2019 saw home values up just 1.8% over the same time period last year. Some segments of the market are seeing no growth or negative growth. In fact, Zillow — which uses slightly different data than the MLS — says that Portland home values have declined 1.9% over the past year, and predicts that they will continue to fall.
The RMLS puts the median home value in Portland at $407,000 ($456,700 is the average; a few multi-million dollar home sales pull the number up, which is why we consider the median to be more accurate). Meanwhile, Zillow puts the median slightly higher, at $417,600. Either way, it can seem like a large chunk of money. But, in the long term, is it really more than renting a home in Portland?
Mortgage Payments vs Rent in Portland
According to economists, the “rule of thumb” for housing affordability is 3 to 1: You should pay no more than three times your annual income for your home. Put another way, your monthly rent or mortgage payment should amount to no more than 30% of your monthly income.
Many factors influence monthly mortgage payment, including the rate, the length of the payback period, the down payment amount, and of course the amount borrowed. Given this, it’s hard to pin down an exact number for the average payment that a Portland homeowner is going to make every month. The folks at Sammamish mortgage have come up with a number: $1,845.66/month (read more about how they got there).
If we compare this to the average rent in Portland — $1,950/month according to Zillow — we can conclude that it is more affordable to buy a home in Portland right now.
There are some caveats. As a real estate agent, I always advise potential home buyers to factor into their monthly housing payment the other “hidden costs” of home ownership. These include:
- Maintenance, including yard care
- Utilities, including gas, electric, water and garbage (for energy costs, reference the Home Energy Score report that is required for every Portland home on the market)
- Property taxes
- Homeowners insurance
- Private Mortgage Insurance, if required by your lender
Equity is the Final Word
So if the cost to rent vs. buy a home in Portland is equal or close to the same, then there really is a clear cut winner – buying a home in Portland. This is because of the end result of your dollars. At the end your housing cost could go toward padding the pocket of a landlord, or padding your own financial pockets. Home equity is a personal piggy bank, often the largest and best investment any citizen has. Now it typically doesn’t work to buy a home and then turn around and sell it the next day or month or year. There are upfront costs to buying and costs to selling a home. So you have to live in the home a little while to make up for those buying and selling costs. Most everyone says your fine at five years, but depending on the real estate market and the location they choose to buy in, I’ve seen a ton of Portlanders make plenty of money after just two years of home ownership (I’ve seen them lose it too).
According to the National Association of Realtors, the biggest obstacle to buying a home for the first time is getting the down payment together. Check out our recent blog post on down payment assistance programs available to Portland buyers, or just call our office today! Our top 1% buyers agent will be happy to answer your questions.August 12, 2019