Why Buying Is Better Than Renting
October 26, 2016
By Kappner Clark
“It’s better to buy than rent, and it probably always will be,” says Bloomberg news in a recent article. We couldn’t have said it better ourselves…
Direct from Patrick Clark at Bloomberg:
Is it better to buy or rent your home?
This is a somewhat silly personal finance trope that assumes a reader is a) living under a bridge and b) has a suitcase full of enough cash to afford a down payment. The reality is that most homeowners start out as renters, and the decision to buy is more likely to be driven by personal circumstances than by the relative value of rental and for-sale housing.
But relative value is fun, and the comparison makes a useful point about the advantages to home ownership baked into the U.S. tax code. Here, courtesy of a new report from Trulia, is a chart that shows whether it’s better to buy or rent in each of the 100 largest U.S. metros:
The conclusion: On a bang-for-your-buck basis, it’s better to buy in all of them.
Some markets are more advantageous than others. In Miami, it’s 53 percent cheaper to buy than to rent a home of similar size, the biggest discount among the metropolitan areas included in the report. In Honolulu, it’s 17 percent cheaper to buy, the smallest discount.
In 58 of 100 metros, including such diverse cities as Chicago, Houston, Long Island (N.Y.), and Nashville, mortgage rates would have to top 10 percent—a level they haven’t reached since 1990—before renting became a better deal. In 26 of 100 metros, including Detroit and Dallas, home prices would have to double to make renting look like a good financial move.
Trulia’s calculations are based on March 2016 median rent and for-sale prices in each of the 100 largest metros; they’re designed to account for inflation, price appreciation, one-time costs (including down payments, security deposits), and the opportunity cost of using money to buy a house instead of investing it in another asset.
Trulia has been compiling the report for years, and buying is now a better bargain relative to renting than in any year since 2012. That’s because low mortgage rates have helped offset rising home prices at a time when rents have continued to rise. The mortgage-interest tax deduction, which provides upper middle-class homeowners with billions of dollars in annual tax breaks, also helps. Given the current conditions, Trulia chief economist Ralph McLaughlin contends that buying will probably be a better deal well into the foreseeable future.
“There are a few markets where renting could be cheaper if interest rates and home prices rise in tandem,” he said. “Nationally, we don’t think it will become cheaper to rent than to buy, because of the tax advantages of home ownership.”
Read the full article here.
Trackback from your site.