February 15, 2008

Let's do the math for homedebtors and would-be buyers. How much cheaper is it to rent than own in your town


Take a typical home or condo and do the math. Rent is pretty simple - what's the payment. "Ownership" though don't forget to add in insurance, taxes, association fees, upkeep and a 15% vacancy buffer.

Folks, we won't see an end to this housing crash until it's cheaper to "buy" than rent. Let's see just how far off we are today

53 comments:

Anonymous said...

30 year fixed PITI payments w/ 20% down for THs in metro DC are in the 3k+ range (near 4k close in & near 3k outside the beltway but then you have multi-hour commutes). Rentals are in the 2k range. I am right on the edge of the beltway & rent a TH for 1850/month, based on todays prices & rates it would be a 3k/month mortgage payment.

rich in fla said...

The situation in south florida is the prices have to come down about another $100,000 for the average house for it to be cheaper to buy than to rent. Depending on where people are it can be really devastating to homeowners especially who bought from 6/2005 forward. Foreclosures are flooding the market here too which puts more inventory and downward pressure on prices. I think if anyone down here really has to sell they are F#$ked because foreclosures are not even selling at this time and eventually they will set the market which means the person who needs to sell is competing against foreclosures. It's really bad here!

wildhalcyon said...

I think its going to be even worse than that. Too many people in the US have little or no savings. Have you seen that stupid commercial from the REIC where they mention that something like 60% of people consider their home to be a significant portion of their savings? Yeah.

Even when prices return to a fair value and it would be cheaper to pay a mortgage than rent, people won't be able to afford it because banks are more wary of lending. No 20%? Sorry, no house for you.

How many people do you know making close to the average income in your area have enough savings to put 20% down on a house in that same area?

The spiral goes a long way down I'm afraid.

Anonymous said...

London it costs about 25% to rent versus own the same place

Anonymous said...

.
.
.
Rent for $1950 in San Diego. To own with 100% financing (for an apples to apples comparison) the cost would be $5,500 with HOA and Mello-Roos fees.

And the rents are coming down as the cost basis on homes bought as REO comes down. I know of some private REO sales through lenders at 30 cents on the dollar!! They are hiding this the same way builders offered post-closing kickbacks to make the values appear supported

Anonymous said...

Anyone knows how to find private REO sales through lenders?
thanks

Anonymous said...

5/1 I/O at 4.5%

$300k loan = $1,125per month

tax= $290 per month
insurance= $90 per month

Total= $1505

Cheaper to Own that to Rent. Plus write of mtg interest on income taxes.

Anonymous said...

I live in San Jose CA. I am renting a house for $2900. It is STILL on the market for $920K. The owner is a realtor!

William said...

anon 12:55-

I too am in the DC area (down in PWC). I recently purchased a place at about 25% off 2006 prices for a 3 bdrm, 2.5 bath TH. FOr 2000 square feet my mortgage is just under $2000 including all association fees, taxes, insurance, etc. Rents for similar houses are in the $1700 range, give or take a little eitehr way depending on the exact location, amenities, etc.

So i'm looking at a monthly cost of about $200-400 more per month. That's not too bad, considering the tax breaks I get allow me to itemize instead of taking the standard deduction, thereby doubling my deductions and adjutments.

JMO, but I think there are some decent places to be had out there if you can find them. I must say, though, not many units we looked at or that I currently see are pricing their listings even close to what equivalent rents are.

William said...

anon 12:55-

I too am in the DC area (down in PWC). I recently purchased a place at about 25% off 2006 prices for a 3 bdrm, 2.5 bath TH. FOr 2000 square feet my mortgage is just under $2000 including all association fees, taxes, insurance, etc. Rents for similar houses are in the $1700 range, give or take a little eitehr way depending on the exact location, amenities, etc.

So i'm looking at a monthly cost of about $200-400 more per month. That's not too bad, considering the tax breaks I get allow me to itemize instead of taking the standard deduction, thereby doubling my deductions and adjutments.

JMO, but I think there are some decent places to be had out there if you can find them. I must say, though, not many units we looked at or that I currently see are pricing their listings even close to what equivalent rents are.

Anonymous said...

Currently renting in the outer 'burbs of NoVa (yeah, where the Market is in a free fall right about now)

My rent is currently 2K Montly, we are 6 Months into a 1 year lease..

Looking forward to getting a much nicer/loaded home, closer "in" (to DC)this coming summer for the same rent or less.

I think we'll have so many (more!) unsold homes that will go for rent after another dead "Spring Market" here that we will basically get to "bid" our rent offers, kinda like you can do to purchase a house right about now....

It's supply & demand - and in DC there too much for Sale & too much for Rent-

and not enough demand for either!

Time to wheel & deal - for rents that is!!! :) Whoo Hoo

Anonymous said...

my mortagge (PITI) is $2065. To rent the same house would cost $1500 or so.

But of the $2065 I am paying back $375 principal and getting about a $300 tax savings. So my true cost is more like $1300.

This is the part of the equation you guys always leave out when doing a rent vs. own comparison. Granted if rent is $2000 and PITI is $5000 it doesn't matter. But in most cases the different in savings is made up by the principal payback/tax savings.

And even if there is still a couple of hundred of savings by renting, so be it. I'll spend that money to know I don't have to move at the whim of my landlord. And in 10 years my mortgage payment will be the same as it is today. Can't say that about your rent.

Buzz Saw said...

It is exactly tied. Of course it is cheaper to own if you bought some time ago. I fear that we are on a permanently high plateau.

Anonymous said...

flippers who bought condos 275-300 K are asking 1250 $ for rent the same place.
Only property tax and asmt comes at 600$ per month!
50 % cheaper than buy.
Pit - Chicago

LauraVella said...

Wild said:"How many people do you know making close to the average income in your area have enough savings to put 20% down on a house in that same area?"


Agree with you wild. I dont think there are very many people who have 20% downpayment sitting around. Even if they did, they would have to get a loan that will blow-up in two-five years. Prices are so high above median salary it isnt funny.

Most people buying are "upgrading" and use the equity to get into another property.

The unlucky ones borrow their retirement from their 401K to use as a downpayment.

It's definitely better to rent than buy. No carrying costs, and if we dont like where we live for any reason - poof we're gone...

Anonymous said...

It costs me $200/month to own in my town, because my house is paid off and Montgomery County in Pennsylvania has the lowest property taxes in the region. :-)

Oh, you meant for my neighbors? Well they're screwed, paying $3000/month mortgages + $200/month property taxes on their $400K houses that couldn't be rented for more than $1500/month right now.

Anonymous said...

Upstate NY: 650-800 to rent vs. 1300+ to own therefore I predict 50% price drop.

Anonymous said...

Don't forget to project the rents forward with inflation for 30 years. The big advantage to buying a house is that you gain control of your single biggest expense. It's about the only inflation hedge available to the average person. And while you're toting up those expenses, don't forget renters should have insurance too, and renters living in equivalent housing are probably going to need to pay moving expenses every few years (because most perma-rentals aren't comparable).

Anonymous said...

Agree that p/e is high, but disagree on the calculations.

I take rent vs. own and calculate 3 scenarios: die before the mortgage is paid, die within 20 years of the mortgage being paid, die 40-50 years after the mortgage is paid.

In my area, anyway, if you plan on living 20+ years after paying off a mortgage, you will come out better owning. No rent, and an asset to pass on.

In the short-term, renting always wins. In the long-term, I calculated 1 million more at 90 by owning. But I don't live in the bay area or NYC either.

Anonymous said...

In St. Louis, you can rent a three to four bedroom, two to three bath place complete with a yard and garage in a safe area with a nice school district for around $1500 per month (give or take a hundred per month). If you are single and don't need as much space and are not concerned with a school district, you can live in a relatively nice are of the city (they do still exist) with a garage and a second bedroom and close to down town for $700 - $900 per month. You can go really cheap in the same city neighborhood with a one bedroom place and garage and basement for storage for $500 to $600 per month (and still be within 10 miles of downtown for work). Median price here has gone from around $189k down to around $169k in the past year and prices still look pretty weak. Median income (family) per a census is around $48k but one problem with that statistic is that for the past 10 years or so, there is a large part of the population that is employed directly or indirectly by the housing market/ development / furnishings / finance/ mortgage business so the increased wage statistics and housing prices have been "hand in glove" for a great many people. What goes up, must come down so it will be interesting to see what the median family wage will do over the course of the next couple of years.

Anonymous said...

It's not even the math for me. As a relatively young, single professional, I don't want to be tied down. I could end up anywhere in the world 12 months from now. Why would I want to face selling a house and losing 6% of it in this market?

Anonymous said...

I remember a couple of years ago when it was brought up that US households had a negative savings rate. Alan Greengas and other government shill economists said it was OK because people had so much equity from rising home prices and that could be counted as savings. Well, the sheeple went out and borrowed against all of that phantom equity and now the home prices have dropped like a rock. Instead of equity, they're underwater and bankrupt now.

Anonymous said...

wildhalcyon said...

Even when prices return to a fair value and it would be cheaper to pay a mortgage than rent, people won't be able to afford it because banks are more wary of lending. No 20%? Sorry, no house for you.


I will. But I know I'm nearly the ONLY ONE. And that's simply because 1) I bought a place someone would actually want to buy from me (downtown DC) and sold at a time when there were still people wanting to buy and 2) because I DID THE MATH and bought a place I could EASILY afford. But even more important, it's because I'm a CHEAP SCOTTISH-ANCESTRY BASTARD, who REFUSED to blow money on SUV's, big-screen TV's, and trips to Costa Rica (well, okay, ONE trip) when everyone else was doing that (even when they had a smaller income and a bigger house than me.)

(In fact, when I bought my place it was to have room for a kick-a** home theater--I wanted to be the first person I knew to have a 60-100 inch screen. Turns, out, I'm so cheap, I'm the LAST person I know to still have a TV no bigger than 27"!)

I wondered where they all were getting the money--for awhile. Now we all know.

keith said...

The question doesn't ask you to compare what your mortgage and ownerships that you took out 5 years ago is compared to renting today.

It's asking if you BOUGHT TODAY, what would the costs be vs. renting.

Got it?

Andy in San Diego said...

The condo I'm renting was listed last summer/fall for $385k, I believe. Owner payed $335k or so two years ago, I believe. Just relisted it for $299k. I imagine he's got an ARM and it's resetting. (Works for Countrywide, BTW.)

I'm paying $1400, but I think it would get $1200 at this point, maybe $1100 in another year? (I'll be out soon.) Not sure what realistic rates are now, but at 6%, 100% financed, it's about $1750. (80% financed, it's about $1400 and say bye-bye to $60k of your savings.) Then add $275 a month for property taxes and $220 for home owner's fees (for what exactly? No pool, no hot tub, no gym...). And subtract tax subsidy. So... what, maybe $1575 plus maintenance costs?

Big Cheese said...

Here in SE Asia renting a 2BR / 2BA condo in a prime part of the big city is about $1600 USD per month. Equivalent condo prices are about $270K USD plus maintenance of about $120 per month. So about $2280 per month with a no money down mortgage or $680 per month more expensive.

Can you say Worldwide property bubble?

BC

Anonymous said...

Keith, I love the poster.

Do you feel lucky punk?

Anonymous said...

This is simple... mortgages are for 25-30 years.

In 25-30 years, the well paying jobs with be abroad, not the USA, and the baby boomers will be dead or retired, not retiring. I predict that 2005 will be the peak of RE until the middle of the century, when inflation essentially evens out the prices with everything else. All and all, it means no recovery and no point in living in a stationary place where being a migrant worker (Carolina for 5 years, Beijing for 5 more, and Singapore for 10) become the norm for those with successful careers.

If you love a particular region (i.e. northern Vermont), save for a retirement pad there, not a place of residence during your working years.

clue_train said...

Mill Valley, CA
renting 2 bedroom house for $2400
same size house across the street for sale for $1.2 mill
it's different in here :)

JimAtLaw said...

Rent:
2200/mo., at $200/mo increased rate for month to month rental (30 days notice)
$50/mo renter's insurance
=$2250

Buy my place: Approx. 550k =
3500/mo payment assuming zero down
500/mo HOA
600+/mo property tax
200/mo homeowner's insurance
0 Assume zero PMI, err on side of buying
0 Assume zero maintenance cost, again err on side of buying
-1500 assume over 40% interest deduction benefit, again err on side of buying
= $3300

Even after (i) the benefits of interest deductibility, (ii) assuming zero PMI with zero down, (iii) paying hundreds in extra rent for month to month for the freedom to leave at any time, (iv) assuming a probably-unrealistically-low property tax rate, and (v) unrealistically assuming zero maintenance costs for owning, buying still costs 50% more than renting.

L.A. has a LOOOONG way to fall.

Anonymous said...

Rent a 3/2 SFH in Fremont California for 1850 per month.

Purchase (mid 600s), with 1.2% property taxes, along with insurance and maintenance would put me at about 5500 per month.

After tax cost of about 4000 per month.

But you see, its different here. This is the Bay Area of California. Everybody wants to live here. Prices never go down.

Hahahahhahahahahahahhahahahahahahah!

Man this is going to hurt hurt hurt when the fundamentals return.

Anonymous said...

anon with the 5/1 i/o loan good luck with that. On a $300K home you'll pay $268K in interest over the life of the loan - good thing it's tax deductible though

Anonymous said...

I just saw an ad for a 1 bdrm condo in Pelham NY - their asking$645K to sell or $3,200 to rent. I just did a mortgage calculator for the total amount at 5.45% interest 30 year fixed that comes out to $3,764/month. Assuming they have some equity in it - it's possible they're breaking even at $3,200/month but the problem is you can rent a 2 bdrm in the same community for $2,200-$2,800. I have no idea why someone would rent a 1bdrm for that much - it's not even a luxury building. If I were only looking for 1bdrm - it would be because I didn't have kids - in that case - I could move to a crappy school district and pay less than $1,500 for rent

Anonymous said...

2/15, 5:23 PM:
Lemme guess - "In 2008, there are no manufacturing jobs in the USA anymore"?

What well-paying jobs are you referring to? The IT ones that have increased wages in India by 3X and now have companies bringing jobs back to the USA to lower costs?

The USA will never lose all of its well-paying jobs. You can talk about McJobs all you want; the fact is anyone can work today, and anyone can get a decent job. You have to realize that a McJob is not a real job, and is for kids as opposed to adults, though. But for people who want to work and have what it takes to reinvent themselves occasionally, no problem.

Anonymous said...

I found an MLS listing similar to the minimum hubby and I would want in a purchased home -- conveniently, they list the current tenant's rent. Let's see how they compare:

Asking Price: $499,000
Assume 20% down, 6.5% on a 30-year
Fully-Loaded Monthly Cost (P&I, Interest, Taxes): $3188.54
Current Rent: $2100

Still a 50% premium to buy over renting the same property...and you don't need a downpayment to rent. Still not a great deal (and this is Glen Park, a neighborhood quite south of SF and, to some, dodgy).

Meh.

-PM

Anonymous said...

based on todays true costs of cash those free and clearers are losing big money and will hope to be able to jack up rents 30 percent or more every year, until cash holders break even on the long term loses they took compared to housing over the last 12 years

Anonymous said...

what average income number dispute?

Anonymous said...

Santa Fe, NM

Just renewed my lease for $1,300/month on a 3br/2ba SFH on 1 acre of land. Got a rent reduction of $50/month.

Right now most everything is still listed at $200/sq ft. So this house would probably be listed for about $340,000 by most realtors out here.

If you put 20% down ($68,000) and get a 30 year fixed at 5.5% that gives you a monthly payment of $1,554 plus taxes of $100/month plus insurance of $50/month = $1,704/month. Also, given the age of this house, i would estimate between $3,400 to $5,100/year in maintenance costs (not to mention this house needs some major updating!). On the low end let's estimate $283/month in maintenance costs = $1,987/month to own.

The drop in interest rates have helped (last year with 6.5% interest rates added $200/month onto the mortgage payment).

Looks like prices have to drop by a 1/3 in order to bring things back into balance. I estimate fair market value of the homes out here to be between $125 to $150/sq ft.

Jymkata

Anonymous said...

I live in San Jose CA. I am renting a house for $2900. It is STILL on the market for $920K. The owner is a realtor!

My friend is currently in the same position. He rents a really nice 4 bed/2 bath in San Jose. Place is 2100 sqr.ft. His rent is $2400/month.

A realtor owns it and has been trying to sell for some time. Original asking price was $850k!

Which, needless to say, will make renting the more affordable choice. :-)

Anonymous said...

In San Francisco I rent a place for $1,200 to buy it would be about $600k

Frank@Scottsdale-Sucks.com said...

Buy vs. rent is WAY off around here. We just leased a place for $3,600 (rent on the same model was around $4,500 a year ago) that lists for around $1.1M for sale today. So after figuring in tax, insurance, repair/upkeep budget, etc., the cost to rent is around 1/3 of that to "own."

Anyone who "buys" in this market is truly a willing mark.

Frank@Scottsdale-Sucks.com said...

5/1 I/O at 4.5%

$300k loan = $1,125per month


Hey dumbass, we're talking about REAL loans here, not the joke toxic loans that have gone out of style in the past months......

Frank@Scottsdale-Sucks.com said...

And in 10 years my mortgage payment will be the same as it is today. Can't say that about your rent.

My rent has dropped $900 total in a year. Can't say that about your mortgage.

BTW - interestingly, the derivative of the word "mortgage" comes from French meaning "indebted for life."

Anonymous said...

NEW YORK CITY

FOR SALE: $1.5MIL
FOR RENT: $5K A MONTH

NOTE MAINTENANCE APPROX $1000
NOTE TAX APPROX $800

CHEAPER TO RENT

Anonymous said...

Anonymous in San Diego at 1:52, just curious: do you expect rents to fall much farther? I rent here in SD and would like to rent a better place, but I keep hearing on this site that the housing crash means rents will also fall. I am not seeing it, yet - when can I expect to? I want to rent in the pricy UTC area; maybe this area is not going to go down?

Anyone in SD who can clue me in, much appreciation to you in advance. I asked this question once before and the only response was some guy yelling at me b/c apparently he thought I was a troll.

Signed,
Not a troll, just a renter who wants to make the most of this - while I save for buying a house in the faraway future when it makes sense.

Anonymous said...

"The IT ones that have increased wages in India by 3X"

That's cause all the offshoring companies flocked to Bangalore, Mumbai, and Delhi at the same exact time (2001 to 2004), flooding the country with a tech worker's shortage. Now, newer coding markets, Vietnam, Romania, etc are coming up which'll effectively make India obsolete. And since the country didn't invest in manufacturing and core R&D, like their neighbors in China and Korea, India will soon be known as a paper tiger than an up and coming hi-tech empire.

See rentacoder.com if you want to know how far programming salaries can fall worldwide. Hate to say it but companies like facebook.com aren't the future of America but a fad. When I see a new Digital Equipment Corporation or DuPont rising from the ashes then I'll believe in a national tech recovery.

Anonymous said...

In Minneapolis it is still actually cheaper to own a middle class 250k house with a 30 mortgage at 6% than it is to rent.

Anonymous said...

Melbourne, Australia.. inner city suburb (~10km from CBD, lots of parks, leafy streets, very nice)

My 2br flat, one of three on the block, costs $867/mo to rent.

Buying an equivalent apartment costs about $400,000; that's if you believe the quoted "expected prices". (There's a long running controversy here of real estate agents underquoting in their advertising, to drum up auction attendance.)

So even if we get lucky and the price is legit at $400k, let's try financing that at 20% down, 30 year, 9% interest .. $2574/mo (!!!), not including council rates or anything like that.

The interest rate will soon to go up to 10% the following year, if our Reserve Bank does what it says it will do.. then it's $2808/mo.

Let's see now, rent at 867, or buy a 30-year albatross at 2570-2800 per month?

(NO mortgage interest deduction for private owners here btw, only investment properties)

Anonymous said...

But of the $2065 I am paying back $375 principal and getting about a $300 tax savings. So my true cost is more like $1300.

Not so - you are neglecting the "opportunity cost" of your down payment plus accumulated principal, which is what you could earn in an equivalent relatively safe investment.

My rent has dropped $900 total in a year. Can't say that about your mortgage.

Do you expect that to continue? Or do you expect over time inflation will catch up with rents? And re. the mortgage, yes some of us can say that if we refi to lower interest rates.

I really love all the rent-v-buy "analyses" here that look only at the first year, I mean crikey, at least look out 5-10 years on something like this, or better yet 30 (assume that if you need to move you sell one house and buy into another keeping your net position the same).

Anonymous said...

We are about one hour Northwest of D.C. (in the country) and just purchased a spec/market home with 10% down.

A comparable to rent in the same neighborhood is around $1800. Our mortgage including insurance and tax is $2100.

Not too bad considering only having 10% down. The builder payed 100% of closing costs and even more down on interest rate points.

Not all builders were as agreeable, and existing homes for sale are still priced in fairytale land.

Yoski said...

Miami:
rent for a 3/2, 1400sqft home in a so-so neighborhood is about $1500/mo.
Owning the same place will incur the following expenses:
taxes: $650/month (yes, no typo!)
insurance: $350/month (again no typo)
So that's about $1000 each month between taxes and insurance alone. Don't give me that crap about the tax write-off. The house I am talking about was build pre WWII and is constantly in need of repairs. Almost all houses in Miami are older vintage, 20's - 50's. So any tax break you get is eaten double and triple by repairs you need to make.
Currently it is difficult to say what such a house is selling for. 3 years back they were going for $250K - $400K. Today we have a glut of foreclosures, those are offered for around $100K - $250K. Many are in dire need to repair which adds another $50K or so.
What are they worth? Hard to say given the outrageous tax & insurance bills that go along with it. Are taxes going down for those properties? That's a definite maybe. After the dust settles I reckon that $100K - $150K is a reasonable price if the house is in decent shape.

gk said...

Browsing the local newsrag, I see that Right now I could rent a 3br/2.5ba home, 2000sqft, garage, on 2 acres, very nice location for....$1000/mo. To buy the same thing...asking price is almost 400k, plus the taxes, upkeep, etc. Nah, the fundamentals aren't f*cked all to hell.

Anonymous said...

In Minneapolis it is still actually cheaper to own a middle class 250k house with a 30 mortgage at 6% than it is to rent.

Ummm, no it isn't. You can rent a nice 3-4 BR house for 1000-1200. Mortgage + taxes + insurance +maintenance = 2500+

Minneapolis will fall by 1/3. More in the outer ring suburbs.