Does the Obamas' $8.1M Home Purchase in D.C. Make Financial Sense?

After trading the White House earlier this year for a Tudor-style rental a couple miles away, former President Barack Obama and his wife Michelle decided to go all-in. They recently spent $8.1 million to purchase the 9-bedroom, 8.5-bath home, according to The Washington Post.

“Given that President and Mrs. Obama will be in Washington for at least another two and a half years, it made sense for them to buy a home rather than continuing to rent property,” their spokesman, Kevin Lewis, told the paper.

In some parts of the country, spending a few years in a home is long enough to make homeownership a financially strong bet. But the city of Washington, D.C., isn't one of them. In March, when the median home value there was $559,200, it would have taken five years of renting before buying that same house made financial sense, according to the Q1 2017 Zillow Breakeven Horizon. The Breakeven Horizon measures the time, in years, it takes for buying a home to become more financially advantageous than renting it.

In the Obamas' neighborhood of Kalorama, where Ivanka Trump, Jared Kushner and Amazon.com founder Jeff Bezos also live, that Breakeven Horizon is even farther away: It takes seven years and four months before buying the median-priced $1.37 million home in Kalorama makes more sense than renting it.

A general rule says that if you live in a home for a short time, it’s cheaper to rent, because buying a home requires hefty upfront costs including a down payment and closing costs, plus ongoing taxes and maintenance. Every situation is unique, of course, and there's lots of reasons to buy a home instead of renting it beyond just making money on the deal. But based on median data alone, it looks like the Obamas would need to keep their new home well into the 2020s for their purchase to make financial sense.

But then, we don't know what they were paying in rent.

Related:

• Watch President Obama Answer Zillow CEO Spencer Rascoff's Housing Questions
• Low-Income Housing Tax Credits: Why They Matter, How They Work and How They Could Change
• A Decade Later, Home Values Return to Bubble-Era Peak