What is the cost of renting vs owning a house? This article will look at recent information and take a fresh look at this well-established question.
There comes a time, in virtually everyone’s life, when they start to look at monthly rent checks and think “what a waste!” Every year, millions of people are paying tens of thousands of dollars to rent a single-family home, apartment, or townhouse. Renting certainly has its uses, but they see this rent money disappear and can’t help but wonder if purchasing a home would be the best option.
Is purchasing a home always the right choice? As a mortgage servicer, we might be expected to lean heavily towards buying a home; after all, it’s in our best interest to have people buying homes and taking out loans. But we want to take an honest approach to this question so you have the right information, allowing you to make an informed, confident decision.
Renting a Home vs Owning Your House: What Do the Numbers Say?
The financial implications of renting vs owning are complex, inconsistent, and often confusing. In many ways, it depends on how you define a seemingly-simple term like “affordability.” By affordability, are we talking about short-term, month-to-month prices, or the long-term financial implications? Other terms can be twisted, reimagined, and reconfigured, adding more and more complexity to a question that should be relatively simple.
ATTOM Database Solutions, a major property database, provides some fairly consistent information that can help us understand the financial implications of renting vs owning a property. According to their 2021 Rental Affordability Study, in 63% of the 915 counties they studied it is more affordable to own a median-priced three-bedroom home than it is to rent a similar property.
However, they found that the median home price has actually increased more than average rent in most counties (83%) and in two-thirds of the counties, home price increases outpaced wage growth.
As we stated above, 83% of the counties studied by ATTOM saw home prices increasing more than rent prices. This includes Los Angeles County, San Diego County, and Maricopa County, the home of Phoenix, Arizona.
There is a lot to unpack and analyze from the report, but one of the more interesting discoveries is that owning a home is generally more affordable in less-populated areas, while renting is more affordable in highly-populate areas. As written by ATTOM, “Home ownership is more affordable than renting in counties with a population of less than 1 million, especially among those with less than 500,000 people.” It seems that if your county is less populated, it’s more likely that owning a home is the more affordable option.
Another interesting conclusion is that the most affordable rental markets are in the South and Midwest, while the West Coast region has the most expensive rent. The five most affordable counties for renting were in the middle or southeastern portions of the country (including Arkansas, Alabama, Ohio, and two in Tennessee), while the most expensive were all in the western or Pacific region of the country. (Three in California, one in Colorado, and another in Hawaii.)
Overall, the group seems to conclude that although home prices have increased, it is still more affordable to own in most areas.
These numbers, however, only tell us so much. They can help us better understand the month-to-month costs of renting or owning, but they don’t really indicate the longterm financial results of either choice.
Financial Advantages of Renting
For many people, renting is the better option. From a monthly perspective, renting can bring lower costs while bringing greater flexibility and spontaneity to your life.
Renting is often less expensive on your immediate budget. Depending on where you live, the monthly rent is usually less than a mortgage payment, especially if you are renting a small apartment or townhouse. (This also depends on the type and terms of the mortgage, but we digress.) When you rent, you are not financially responsible (in most cases) for the maintenance and upkeep of the property; if the furnace goes out, it’s up to the landlord to repair or replace it; if the garage door needs fixing, the landlord picks up the costs; when the shingles are outdated, the landlord has to pay the bill. When you rent, however, you don’t need to worry over these expenses, which can easily track into the tens of thousands of dollars.
While this won’t be realized by all renters, renting can bring access to certain amenities that lower the cost of living. Many apartment complexes, and not just high-end ones, have swimming pools, fitness centers, and lounge areas, eliminating the need to pay for these luxuries.
There is also less insurance cost with renting. Homeowner’s insurance can cost tens of thousands of dollars a year, while renters usually have renter’s insurance, a far more affordable option that pays for damaged property.
Advantages of Owning Your Property
While renting a home is cheaper from a monthly perspective, owning your property is often more affordable longterm. When you make rent payments, that money goes to the landlord and is gone forever. But when you make a mortgage payment, the principal portion of the check is essentially locked into equity, building the percentage of the home that you own. After 15 or 30 years, you are left with a home that is likely worth hundreds of thousands of dollars.
There are also tax benefits, although with renting you don’t pay property taxes at all.
If you take out a 30-year fixed-rate loan, your last payment will be the same amount as the first. 10, 20 and 30 years from taking out the loan, you’ll pay the same amount. However, rent is virtually guaranteed to go up and could surpass the typical mortgage payment from 15 or 20 years ago.
In the end, renting vs owning a home is a person choice that must include your unique situation. While we can’t make the choice for you, we can help with mortgage approval if you decide that owning is the right choice for your future.
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