Is It Better to Buy or Rent? - New York Times
THE thought has occurred to just about everybody who owns a home in a hot housing market: maybe it's time to cash out.
The hard part is figuring out how to do so. Only a few families can actually pick up their life in, say, California and move it to Nebraska. The other option - renting - has long been derided as the equivalent of throwing money away.
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Steve Ruark for The New York Times
The house at 1506 Mintwood Drive in McLean, left, sold for $829,900. A similar house nearby, at 1514 Mintwood Drive, right, rents for $3,500.
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How the Numbers Were Calculated (September 25, 2005)
Downloadable Spreadsheet: View home prices and rent costs in 53 metropolitan areas.
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Barbara P. Fernandez for The New York Times
Polly Thompson and Tchaka Owen love their Miami building's water views. Their rent is $1,700 a month.
But renting might deserve another look right now. After five years in which rents have barely budged while house prices in New York, Washington, Los Angeles and elsewhere have doubled, renting has become a surprisingly smart option for many people who never would have considered it before.
Owning a home often ties up hundreds of thousands of dollars that might be invested more safely and more lucratively elsewhere over the next decade. And while real estate brokers may hate to acknowledge it, home ownership involves its own versions of throwing money away, like property taxes and the costs of borrowing.
Add it all up - which The New York Times did, in an analysis of the major costs and benefits of owning and renting, including tax breaks - and owning a home today is more expensive than renting in much of the Northeast, Florida and California. Only if prices rise well above their already lofty levels will home ownership turn out to be the good deal that it is widely assumed to be.
In the Bay Area of California, a typical family that buys a $1 million house - which is average in some towns - will spend about $5,000 a month to live there, according to the Times analysis. The family could rent a similar house for about $2,500, real estate records show, and could pay part of that bill with the interest earned by the money that was not used for a down payment.
This gaping difference helped persuade Eloise Christensen to sell her century-old Victorian cottage in downtown Larkspur, Calif., for $1.05 million this year. Now she rents a two-story house in Stinson Beach for $2,400 a month. From her living room, she can sip tea and watch the waves from the Pacific Ocean.
"It just seems out of control," said Ms. Christensen, 43, a massage therapist and graphic designer. "It didn't seem to me that the market was going to be able to sustain these high prices."
There are obviously benefits to home ownership beyond the financial, like peace of mind and a feeling of stability. Owners cannot have their home yanked away by a landlord who has decided to move back in. Owners can also change the color of their living room walls or fix a draft seeping through their windows without asking permission.
Surrounding her Larkspur cottage, Ms. Christensen had built a garden with rosemary, lavender and boxwood hedges to complement the pear and fig trees already there. She is not doing anything like that in Stinson Beach.
Combine these benefits with the transaction costs of a house sale, and renting probably does not make sense for most people who already own their home and feel settled in it.
But the calculation can look quite different for those who are considering a move anyway or who do not yet own a home. At the very least, renters in boom markets, who often lament that they are wasting money, should know that their choice has as powerful an economic rationale as buying does right now.
THE thought has occurred to just about everybody who owns a home in a hot housing market: maybe it's time to cash out.
The hard part is figuring out how to do so. Only a few families can actually pick up their life in, say, California and move it to Nebraska. The other option - renting - has long been derided as the equivalent of throwing money away.
Skip to next paragraph
Enlarge This Image
Steve Ruark for The New York Times
The house at 1506 Mintwood Drive in McLean, left, sold for $829,900. A similar house nearby, at 1514 Mintwood Drive, right, rents for $3,500.
Multimedia
Graphic By the Numbers
By the Numbers
Graphic Adding It Up
Adding It Up
Related
How the Numbers Were Calculated (September 25, 2005)
Downloadable Spreadsheet: View home prices and rent costs in 53 metropolitan areas.
Readers
Forum: Owning and Renting a Home
Real Estate Tools
. Homes for Sale
. Homes for Rent
. Open Houses
. Suggestions/Feedback
. Community Data
. Mortgage Information
Sponsored by:
Barbara P. Fernandez for The New York Times
Polly Thompson and Tchaka Owen love their Miami building's water views. Their rent is $1,700 a month.
But renting might deserve another look right now. After five years in which rents have barely budged while house prices in New York, Washington, Los Angeles and elsewhere have doubled, renting has become a surprisingly smart option for many people who never would have considered it before.
Owning a home often ties up hundreds of thousands of dollars that might be invested more safely and more lucratively elsewhere over the next decade. And while real estate brokers may hate to acknowledge it, home ownership involves its own versions of throwing money away, like property taxes and the costs of borrowing.
Add it all up - which The New York Times did, in an analysis of the major costs and benefits of owning and renting, including tax breaks - and owning a home today is more expensive than renting in much of the Northeast, Florida and California. Only if prices rise well above their already lofty levels will home ownership turn out to be the good deal that it is widely assumed to be.
In the Bay Area of California, a typical family that buys a $1 million house - which is average in some towns - will spend about $5,000 a month to live there, according to the Times analysis. The family could rent a similar house for about $2,500, real estate records show, and could pay part of that bill with the interest earned by the money that was not used for a down payment.
This gaping difference helped persuade Eloise Christensen to sell her century-old Victorian cottage in downtown Larkspur, Calif., for $1.05 million this year. Now she rents a two-story house in Stinson Beach for $2,400 a month. From her living room, she can sip tea and watch the waves from the Pacific Ocean.
"It just seems out of control," said Ms. Christensen, 43, a massage therapist and graphic designer. "It didn't seem to me that the market was going to be able to sustain these high prices."
There are obviously benefits to home ownership beyond the financial, like peace of mind and a feeling of stability. Owners cannot have their home yanked away by a landlord who has decided to move back in. Owners can also change the color of their living room walls or fix a draft seeping through their windows without asking permission.
Surrounding her Larkspur cottage, Ms. Christensen had built a garden with rosemary, lavender and boxwood hedges to complement the pear and fig trees already there. She is not doing anything like that in Stinson Beach.
Combine these benefits with the transaction costs of a house sale, and renting probably does not make sense for most people who already own their home and feel settled in it.
But the calculation can look quite different for those who are considering a move anyway or who do not yet own a home. At the very least, renters in boom markets, who often lament that they are wasting money, should know that their choice has as powerful an economic rationale as buying does right now.
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