Buying vs. Renting in the U.S. - Consumer Justice Foundation

Buying vs. Renting in the U.S.

Written by Faith Anderson on August 16, 2011
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Buyer’s Markets

Some of the top buyer’s markets can be found in cities like Las Vegas, Detroit, Sacramento, Phoenix and Jacksonville. In Las Vegas, prices have decreased more than 59% from their August 2006 peak, according to the S&P/Case-Shiller home price index. Trulia reports that the median price of a two-bedroom, two-bath condo or townhouse in Vegas is about $60,000, a ratio of only six times the median annual rent of a similar apartment, which is $9,700. A median-priced Vegas condo would require monthly mortgage payments of only $256 on a 30-year, 5% interest loan. Even including property taxes and common charges of approximately $300 per month, the monthly cost is still much lower than the $810 per month in rent that similar places are asking for. In Detroit, the median price for a condo or townhouse is about seven times the annual rent. Home prices in Sacramento, Phoenix and Jacksonville are about eight times annual rent cost.

Renter’s Markets

New York is still considered the best market for renters, even though the average cost of rent is the highest of any of the 50 markets, at about $2,980 a month,. Buying the same kind of two-bedroom apartment in Manhattan would cost nearly $1.3 million, 36 times as much as rent. Another area in which buying drastically exceeds renting cost is Ft. Worth, Texas, where buying comes in at approximately 32 times the cost of rent, which averages $9,500 a year. Other places where renting makes financial sense include Omaha, Nebraska, where buying is 27 times annual rent; Seattle and San Francisco, which carry purchase prices 24 times rent cost; and Kansas City, where home prices are 22 times the cost of renting a similar place.

So…Rent or Buy?

It is important to take several different things into consideration when weighing the benefits and risks of renting and buying. Some of the most important factors to consider besides price when deciding whether to buy or rent include:

  • How long you plan to stay—If you’re not planning to stay for seven years or more, the extra costs of buying and selling, like closing costs and commissions, can override any buying benefits.
  • Whether you can cover all home-ownership costs—Besides the mortgage, other home-ownership costs include insurance, property taxes, utilities, heat and regular maintenance.
  • Whether you have cash for closing—Most banks are only willing to lend up to 80% of the cost of a home, which means potential home-owners must be able to afford 20% down, plus closing costs. For a $200,000 home, that adds up to $40,000.
  • Whether you can claim the tax advantages of home-ownership—Mortgage interest is deductible and can take a lot off of tax bills, but this benefit accrues mostly to high interest earners with considerable mortgage payments. Many borrowers claim the standard deduction on their taxes, which often means they derive no savings from the deduction.

Benefits vs. Risks of Buying and Renting

Even in areas where its cheaper to rent, it doesn’t always mean renters will come out on top, according to a real estate professor at Florida International University and co-author of a new buying vs. renting study. “Paying off a mortgage is a kind of forced savings,” he says; each mortgage payment decreases the balance you owe and increases the value of your property holdings. Depending on where they live, renters may save on expenses but, unlike the forced savings of mortgage payments, they don’t have anything to show for their monthly payments regarding savings. On the other hand, while buying a home may be a cheap option at this point, many home-owners have found out the hard way that owning a home isn’t as easy as it seems.

Posted Under: United States
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