Sunday, February 19, 2006

Cheaper to Rent Than Buy?

I know we have all read the stories by the 'experts' how it is always cheaper to own than rent, how renters are losers, and that even in today's market it is cheaper to own vs. rent. The NAR predicts price appreciation as far as the eye can see.

With that in mind, I decided to run the numbers through this calculator. The calculator is offered by the Center for Economic and Policy Research in Washington, D.C.. With the median price of a house in Palm Beach County around $400,000, I was curious as to what the results would be.

I plugged in what I think are reasonable data. A $400,000 house, putting 20% down(This really doesn't change the outcome much), 6% mortgage(not an exotic 2% teaser), 28% tax bracket, not selling for 5 years. I wanted to approximate the average buyer and what he should expect the outcome to be.

Needless to say, I was floored by the results! The total net cost of owning in the next 5 years vs. renting is $177,000. That is over $32,000 a year folks. The assumptions are based on a forecasted 48% DECREASE in value of the home over the next five years.

Even if I put ZERO down, my monthly costs ( Your basic monthly costs include your mortgage, maintenance and insurance. You will also pay taxes, mortgage fees, closing costs, and have a down payment to manage.) would be $2700 a month or about $600-$1000 more than rentals in my area. Assuming you were to be optimistic and feel that values will be flat for the next five years, that is anywhere from $35,000 to $48,000 more to own than rent.

Talk about a 'scary" proposition indeed.


At 11:44 AM, Anonymous Anonymous said...

This is why I sold my "second" home and now rent a cute 2/1 downtown Orlando for $750.00 a month, with a washer/dryer! A 2/1 condo is $260,000.00 minimum????? Also, never mind, if the weather takes out your home, your non-liquid assetts are now tied up litigation with the insurance company for many years because they do not want to pay. I know, it happend to me with my first home. If you rent and a hurricane hits, it is not your problem. All of my friends who were former home owners are now renters.
Insurance is a false sense of fiscal security. So, the boom may burst, but the cat 3's and 4's do not help. I say rent!!!

At 6:04 PM, Anonymous Sandy said...

Phew! I don't feel so bad for having rented for the past two years. We relocated and hit the price wall of South Florida. Some stuningly offensive. Our local attorney advised to wait until winter this year. Thanks for the article. It hit the spot.


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