Renting Is Cheaper Than Buying in All 50 Major Metro Areas in the United States

I made a spread sheet comparing renting to buying a few years ago. The premise was that I wanted to compare my investment in my home vs. paying less to rent and investing the difference in the stock market. The assumptions were something like a 3.5% mortgage rate (30y) and 4% appreciation on my home, vs. a 7% appreciation in the market.

What I found is that on a time horizon of ~7 years, it absolutely makes sense to buy a home. The reason is that when you have a mortgage, you're making a highly leveraged investment. If you buy a house for 100k and put 20k down, then you're 5x leveraged. If you're able to sell the house for 110k. The price has increased 10%, but your ROI is 50%.

There was a definite inflection point after 7 years, however, where the amount of leverage decreases to the point that the higher gains in the market begin to dominate the modest increase in home value.

Did you include closing fees?

Those can take a big chunk out of the appreciation when you sell and buy, and could make a difference of not breaking even for an additional year or two.

RE prices, not really. Most landlords seem just happy to have someone not tearing up their house and making payments on time. I've not had one increase rates.

If they did increase rates, well, I guess move? Or buy a house if rent everywhere is crazy.

I do tend to move a lot, but that's what I like about renting. Freedom. Can just pick up and leave and onto the next adventure. I owned a house years back, and it felt like a big anchor holding me down.

Kids are an important factor. I think age matters a lot. Mine is in elementary school and is just happy to meet new people.

You do get 'stability' with buying a house, but that's not always good or even a sure thing. Maybe your city will implement a bussing program and cart your kid across the county. Maybe you get an awful neighbor(s) who make tons of noise, park cars in their yard, etc.

Stability is definitely a double edged sword IMO.

> for renters don't you worry about being unable to control housing prices long term?

Yes. This is what ultimately led me to a home purchase. I rented for 3 years, and moved each time. After the first year at each place, rent was increased anywhere from 4% a month to 15% if I were to renew. I ended up not renewing a lease each time, since I didn't have many possessions and could move within a day with the help of a buddy for the big things.

I think that might answer your second question too, but I was younger and had less obligations at the time, so moving was more feasible.

I ended up buying simply because I was already renting the cheapest in my market (really bad area, but good location for my needs), and rent was skyrocketing at about 5-10% increases everywhere I looked. I bought for many reasons, but the primary driver was as a way to secure a stable monthly payment and not have too worry about increasing my future wages to keep my current quality of life.

when did you buy?