Buying a home is 44% cheaper than renting -- maybe
Trulia's analysis finds that purchasing is cheaper than renting in all major U.S. cities -- if you can get the best interest rate, itemize deductions on your tax return and plan to stay at least 7 years.
It’s the perennial question: Should I buy or rent?
If you don’t have good credit and a secure job, you may not have a choice, because you may not be able to get a mortgage. But those who do have a choice are giving a lot more thought to whether to buy, which once seemed a no-brainer.
According to a new analysis by the real-estate portal Trulia, buying is 44% cheaper than renting, even in large, expensive metro areas such as New York and San Francisco. Rising home prices haven’t changed the equation much. Last year, buying was 46% cheaper than renting.
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All things being equal, does that mean you should buy?
We’ll give that a definite maybe -- because all things are never equal.
In doing its analysis, Trulia made certain assumptions: You are planning to keep the house at least seven years, you put 20% down, you got a 30-year mortgage at an interest rate of 3.5%, you were in the 25% tax bracket and you itemized deductions. If your situation is different, YMMV – your mileage may vary, and buying may not be the deal it appears to be.
If you want to see what happens with higher mortgage rates, a different tax scenario and/or a different amount of time in the home, Trulia has an interactive map.
As with every real-estate story, the other major factor is where you live.
If you live in San Francisco, for example, buying is only 19% cheaper than renting. Change one of the assumptions, and you may find renting a better deal. In contrast, buying is 70% cheaper in Detroit, and it may be the better deal even if you have to pay a higher interest rate, don’t itemize your taxes and stay fewer than seven years.
The other cities where the line between buying and renting is smaller: Honolulu; San Jose, Calif.; New York, including the New Jersey suburbs; Albany, N.Y.; Orange County, Calif.; San Diego; Los Angeles; Long Island, N.Y.; and Ventura County, Calif., in that order.
The cities where buying is at least 58% cheaper than renting, after Detroit, are Dayton, Ohio; Gary, Ind.; Cleveland; Warren-Troy-Farmington Hills, Mich.; Toledo, Ohio; Memphis, Tenn.; Kansas City, Mo.-Kan.; Birmingham, Ala.; and Indianapolis.
Zillow, another real-estate portal, sliced and diced its data another way, coming up with the 10 largest cities where it takes the longest to break even if you buy rather than rent. Using its methodology, the cities where it would take the longest to break even are New York, Seattle and Boston. All were under the seven-year point used in the Trulia analysis.
Should you rent or should you buy? You’re going to have to do your own personal math before you decide.
after reading some of these comments i had to post. In my case buying is cheaper. I'm a landlord and am renting out a $134k house for $1000/month. mortgage is about $600 add in all the expences and i'm profiting about $200 a month. so, with this house it's $2400 a year cheaper to buy it. yes there are repairs (amoung other things), but it just lowers my yearly rental income then i'm taxed on that lower amount.
So you people that don't agree, that's fine... come and rent my house, pay my mortgage, and I'll take the extra and put it towards my Benz payment. :) Oh and once you're done paying off my mortgage, i'm just going to pocket that $1000
The myth that began in the 1930s about the "pride in home ownership" and the great "American Dream" has misled many people. It's fine for those who have the income and savings to cover all the little things that pop up. Besides general maintenance and keeping the house updated, taxes and insurance can also take a bite out of your budget.
If you have a mediocre paycheck and little savings, you're better off in an apartment. Ask the hundreds of thousands of people who stuck their necks out and mortgaged a house during the housing boom. It takes many years to pay a house off and often people refinance and the house is truly never theirs no matter how they want to phrase it. It belongs to banks and mortgage companies and you're still basically renting.
"Home is where the heart is" is still something to consider. It's where your family and pets live and happy moments are shared. It truly has nothing to do with the mansion, showmanship lifestyle that is so prevalent today.