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

nytimes.com

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

#31

Post by bionhoward »

"Cheap" is a terrible argument for an investment decision!

If the free market finds a better way to supply housing (prefabs, 3d printing, bigger apartment complexes), then the cost of housing will fall, and thus the speculation on housing prices going up will not work out in the owner's favor, inflation or not, but at least the mortgage payments build equity instead of going into someone else's pocket.

Will the speculated increase in resale value outpace maintenance cost? Not if the resale value goes down for any reason, but then the sum of maintenance cost plus lost value would still need to be more than the rent.

Since housing prices are going up right now, and maintenance while expensive is not more than the value of the home equity, it really does make sense to buy, even at high prices, right?

However, if renting is substantially cheaper than buying, then you could dollar cost average the difference into stocks, and potentially make more. That is also speculative and depends on future stock returns.

Finally, some folks can only afford the cheaper option. For them, it's not really a choice...

crunch numbers...don't just guess

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

#32

Post by thebean11 »

dimes wrote: post #12

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…

Can you just take the equity back out of your home and put it into the market?

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

#33

Post by 988747 »

splithalf wrote: post #5
Bostonian wrote: post #2

Fixed rate mortgage payments are constant, but rents rise with inflation. If people expect high inflation, that may explain why rents look cheap compared to current mortgage payments on comparable residences.

Rent control is the norm in our most expensive rental markets.

Which is the reason why they are expensive...

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

#34

Post by adamredwoods »

JohnWhigham wrote: post #8

This is literally a no-brainer, especially when the hidden costs of home ownership aren't even factored into this: Septic tank needs emptying? Years of built-up termite damage finally rears its ugly head? HVAC broke in the middle of the night? Don't have to worry about those costs when renting.

It really depends. Anecdotally, I have found the cost of owning to be less than renting, even when I had to replace a leaking roof, and I don't feel like I'm at the mercy of the rental market. If I own my home for 5 years, I come out ahead, especially if inflation is on the rise.

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

#35

Post by fairity »

dimes wrote: post #12

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…

> The reason is that when you have a mortgage, you're making a highly leveraged investment.

You can lever up an equity portfolio as well. Moreover, the going interest rate for a margin loan is only 1-2% (less than the cost of a mortgage).

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

#36

Post by adamredwoods »

brianwawok wrote: post #23
abstractbarista wrote: post #17

I guess based on averages, this can be true. For Raleigh, NC they list the rent ~$1100 and mortgage ~$1500. I have a 15yr fixed mortgage at 2.75% which I started with 20% down to avoid PMI. All-in (HOA, utilities, principle, interest, insurance, maintenance) I am paying ~$1200. And that's to live by myself, in a two-story, 1400sq.ft. townhome. We have a lovely community pool too. There is no way I could pay that litt…

While I generally agree, and own myself, there are some clear downsides to owning that may not have made your math. * Cost of maintenance and upgrades. You now have to mow your grass or pay someone to mow it. You now need to shovel your driveway or pay someone to do it. When the toilet breaks, you now need to pay for it. When your roof wears out, you now need to replace it. If you don't replace carpeting and replace…

>> protected by the falls

There are protections for house owners. In extreme cases, one can walk away from a mortgage, and take a 7-year loan default.

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

#37

Post by sparrc »

Isn't this generally always the case?

I've always understood that when you buy you should expect to be paying more than a renter for maybe 5-10 years. At least in the US mortgage payments are almost always fixed whereas rents are almost never fixed or controlled.

Rent just rises forever in most cities and usually mortgage payments of people who have owned for 10 years look like amazing bargains.

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

#38

Post by OldHand2018 »

jeffwass wrote: post #25
serjester wrote: post #15

Any one else questioning the study methodology? They just compared the average rent payment vs the average mortgage payment? The average home owner is better off than the average renter so they're buying nicer places. The study made no effort to correct for this. Seems like their conclusions is a given.

Also, I’d put a premium on being able to decide on my own improvements instead of settling on the landlord-chosen paint colours and carpets and appliances.

Dude, you aren’t supposed to be paying extra for that!

You take on risk when you customize things. Other people could dislike your color choices and drive your resale value down, the trendy refrigerator you bought might be a maintenance nightmare, etc.

You are supposed to be compensated for taking on risk, which is why owning should be cheaper than renting!

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

#39

Post by snowwrestler »

dimes wrote: post #21
milkytron wrote: post #14

Earlier quoted context omitted.

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.

Yes, fees were included for selling the house, but I did not include capitol gains taxes in the investment calculation.

You should because that can be a big factor in comparing returns between home ownership and equities. You can keep $250k of capital gains on your home tax free, while the lowest capital gains rate you’ll pay when selling equities is 15%. That can be a significant difference in what you take home.

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

#40

Post by crazygringo »

serjester wrote: post #15

Any one else questioning the study methodology? They just compared the average rent payment vs the average mortgage payment? The average home owner is better off than the average renter so they're buying nicer places. The study made no effort to correct for this. Seems like their conclusions is a given.

Seriously. I thought I had to be missing something, it's so apples-and-oranges.

And not just the fact that the average home owner is better off, but also that the inventory for buying vs. renting is drastically different.

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