Rent vs Own Stats That Will Surprise You
Even though asking home prices rose 7.0% in the last year, outpacing rent increases of 3.2%, the gap between buying and renting has narrowed only slightly. One year ago, buying was 46% cheaper than renting. Today’s it’s 44% cheaper to buy versus rent. In fact, homeownership is cheaper than renting in all of America’s 100 largest metros. That’s because falling mortgage rates have kept buying almost as affordable, relative to renting, as it was last year. According to Freddie Mac, between February 2012 and February 2013 the 30-year fixed rate dropped from 3.9% to 3.5%, though rates have been rising in March.
To determine whether renting or buying a home costs less, we do the following:
- Calculate the average rent and for-sale prices for an identical set of properties. For this report we looked at all the homes listed for sale and for rent on Trulia from December 2012 to February 2013. We estimate prices and rents for the similar homes in similar neighborhoods in order get a direct apples-to-apples comparison. We are NOT just comparing the average rent and average price of homes on the market, which would be misleading because rental and for-sale properties are very different: most importantly, for-sale homes are 47% bigger, on average, than rentals.
- Calculate initial total monthly costs of owning and renting, including maintenance, insurance, and taxes.
- Calculate future total monthly costs of owning and renting, taking into account price and rent appreciation as well as inflation.
- Factor in one-time costs and proceeds, like closing costs, down payments, sales proceeds, and security deposits.
- Calculate net present value to account for opportunity cost of money.
To compare the costs of owning and renting, we assume people will get a 3.5% mortgage rate, reside in the 25% tax bracket and itemize their federal tax deductions, and will stay in their home for seven years. We also assume buyers get a 30-yr fixed-rate mortgage and put 20% down. Under all of these assumptions, buying is 44% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period. We also look at alternative scenarios by changing the mortgage rate, the income tax bracket for tax deductions, and the number of years one stays in the home.
Buying a home is cheaper than renting in all of the 100 largest metro areas, but buying ranges from 19% to 70% cheaper than renting. But if this proves to you that owning your own home is less expensive than renting, then what makes some still hesitate to purchase. The fear of the unknown, not knowing where to start the process, concerned about the future.
No matter what the hesitation maybe, you will still need a place to live, a home to raise your children, and a place you would truly want to call . “Home Sweet Home”. The first step may seem the hardest but it is actually the easiest and then enlightenment will come your way. Contact a Denver Metro Realtor that will help guide you thru the process of purchasing a home. An experienced Realtor will help you determine the area, the price point and payments, and also know the right mortgage person to facilitate the loan.