Should you rent or buy a home? This question involves more than just comparing monthly payments. It requires weighing the full financial trajectory of homeownership—including upfront costs, ongoing expenses, building equity, and eventual sale proceeds—against the alternative of renting while investing your savings elsewhere.

Our rent vs. buy analysis simulates both scenarios over a 30-year horizon to determine when, and whether, buying becomes financially preferable to renting in a given market. We produce this metric for the nation and the top 50 largest metropolitan areas to help inform housing decisions and affordability research.

What We Model

The analysis compares two households with identical incomes making different housing choices, assuming a homeowner would make either a 5%, 10%, or 20% down payment:

The Buyer purchases a home with a fixed-rate 30-year mortgage and bears all the costs of homeownership: mortgage payments, property taxes, insurance, maintenance, and closing costs at both purchase and sale. Over time, they build equity as they pay down the loan and as the home appreciates in value.

The Renter pays monthly rent and renter’s insurance, but invests the money they would have spent on a down payment and closing costs. This investment grows at a conservative risk-free rate over the 30-year period.

We then calculate the net financial position for each household every month over 30 years and discount those outcomes to present value. This allows us to identify the “breakeven point”—the number of years you’d need to stay in the home before buying becomes financially advantageous compared to renting.

The analysis draws on several data sources:

• Zillow Home Value Index (ZHVI): We use the single-family residential home values for the middle price tier (homes valued between the 33rd and 67th percentiles) to represent typical home prices in each market.
• Zillow Observed Rent Index (ZORI): Single-family rental prices provide the starting rent levels for each market.
• Consumer Price Index for Rent (CPI Rent): Published by the Bureau of Labor Statistics, this national measure provides a stable, long-term baseline for projecting how rents grow over time.
• 10-Year Treasury Yield: We use the 10-year Treasury rate as a proxy for the risk-free rate of return, both for the renter’s investment portfolio and for discounting future cash flows to present value.
• Market-Level Costs: Our analysis incorporates region-specific property tax rates, homeowners insurance costs, and maintenance expenses, along with prevailing mortgage rates.

The Methodology

Our analysis proceeds in eight steps: estimating growth rates, building the payment schedule, computing loan amortization, calculating costs for each household, computing benefits, comparing outcomes, and discounting to present value to find breakeven points.

Step 1: Projecting Future Growth

To simulate costs and benefits over 30 years, we need to project how home prices, rents, and insurance costs will change. We use historical market-specific growth rates as a guide.

Step 3: Understanding the Homeowner’s Costs

A homeowner’s monthly mortgage payment contains a number of components, some of which are the cost of the loan, and some of which contribute to equity. Each mortgage payment contains both principal (which reduces your loan balance) and interest (which compensates the lender). Early payments are mostly interest; later payments are mostly principal. We use a closed-form formula to determine what fraction of each payment goes toward principal:

where r is the monthly interest rate and k is the number of payments remaining. As you pay down your mortgage and as your home appreciates, your equity grows. We project home prices forward using the historical growth rate, interpolating monthly to create a smooth price trajectory. Equity at each month is simply:

Homeowners trade off significant up front and some ongoing costs for equity in a stable asset. We incorporate the following:

• The down payment (ranging from 5-20% of the home price)
• Private mortgage insurance (PMI), assumed at 1% for down payments less than 20%. When the loan-to-value ratio of the property reaches 22%, this automatically goes away.
• Buyer closing costs (this is things like title insurance, …), assumed at 3% of the home price.
• Property taxes, determined by local estimates.
• Homeowner’s insurance, determined by local estimates and projected based on historical insurance rate increases.
• Maintenance costs, assumed at 0.5% of the home price.
• Seller closing costs (agent commissions, …), assumed at 6% of the home price at selling.

Property taxes and maintenance costs grow with the projected home value. Insurance costs are based on the original purchase price adjusted by how insurance rates change over time.

Step 5: Renter Costs

Renters have a much simpler cost structure:

• Monthly rent, which grows annually at the historical CPI rent growth rate.
• Renter’s insurance, assumed at 1% of monthly rent.

We exclude broker fees from this analysis, since broker’s fees are highly regional and variable.

Step 6: Savings and Investment

Both households can afford whichever monthly payment is higher. When one household pays less than the other, the difference represents money they can save and invest:

• If renting costs more than owning: The homeowner effectively “saves” the difference each month.
• If owning costs more than renting: The renter saves and invests the difference.

Additionally, the renter invests the lump sum they would have used for a down payment and closing costs. This investment grows monthly at the risk-free rate (10-year Treasury yield):

The renter’s total financial benefit at each point includes their accumulated savings, their initial investment, and all investment earnings.

Step 7: Comparing Net Positions

At each month in the 30-year timeline, we calculate what each household’s financial position would be if the homeowner decided to sell:

Homeowner’s Net Position:

Renter’s Net Position:

Step 8: Discounting to Present Value and Finding the Breakeven

Because a dollar today is worth more than a dollar in 30 years, we discount all future net positions back to present value using the risk-free rate (10-year Treasury yield):

We then identify three breakeven points:

• Homeowner breakeven. First month where the homeowner’s net present value turns positive.

• Renter breakeven. First month where the renter’s net present value turns negative.

• Homeowner vs. Renter breakeven. First month where buying becomes more financially advantageous than renting.

The homeowner vs. renter breakeven is the primary metric we report—it tells you how many years you’d need to stay in the home before buying becomes the better financial decision compared to renting for each down payment scenario.

Limitations and Caveats

As with any financial model, ours involves simplifications and assumptions:

• Constant growth rates: We project home prices, rents, and insurance costs using historical average growth rates. This doesn’t capture market cycles, recessions, or regional booms and busts. The 2016-2019 averaging period was chosen to avoid the pandemic era, but past growth may not reflect future trends.
• National rent growth: Because CPI Rent is only available nationally, we apply the same rent growth rate to all markets. Cities with faster or slower rent growth than the national average aren’t differentiated in our projections.
• Fixed mortgage rates: We assume buyers lock in a fixed rate for 30 years and never refinance. In reality, many homeowners refinance when rates drop.
• Tax benefits not included: Our analysis does not factor in mortgage interest deductions, property tax deductions, or the capital gains exclusion on home sales (up to $500,000 for married couples). These tax benefits can make homeownership significantly more attractive for households that itemize deductions.
• Disciplined renter investing: We assume renters consistently invest their down payment savings and any monthly savings at the risk-free rate for 30 years. In practice, many renters may not save or invest this money, or may earn different returns.
• No moving costs for renters: The model doesn’t account for security deposits, application fees, moving expenses, or lease break penalties that renters often face.
• Middle-tier homes only: We analyze homes in the middle price tier (33rd-67th percentile) within each market. Breakeven calculations may differ for starter homes or luxury properties.
• Insurance cost base: Insurance premiums grow with insurance rate changes but not with home price appreciation. This means we may underestimate insurance costs for rapidly appreciating properties.

How to Interpret the Results

A breakeven of 5 years means that for the typical median-income earning household that plans to stay in the same home for at least five years, buying is likely the better financial choice compared to renting. If they were unsure if they would stay that long, renting may be more advantageous.

Keep in mind that this analysis focuses on financial outcomes. The rent vs. buy decision also involves personal factors—lifestyle preferences, job stability, family plans, and the non-financial benefits of homeownership—that our model doesn’t capture.

This methodology is designed to provide a transparent, data-driven framework for comparing the financial implications of renting versus buying. As market conditions, data sources, and economic understanding evolve, we will continue to refine and update our approach.