The New York Times proves that in many expensive areas of the country (California, northeast U.S., etc.), it can be much better (financially speaking) to rent rather than to buy the same dwelling.
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.
The article describes the paper’s reasonable methodology behind their calculations. Of course, any individual’s situation may vary from the “average” the article represents. But here’s my favorite bit of the article, something that so many people I’ve talked to don’t understand:
Many people seem to believe that buying a home can actually save them money because the interest on their mortgage is tax deductible. But all that deduction does is reduce the cost of borrowing the money – a cost that would not exist if the family were not buying the home.
Updated October 10, 2007 and originally published September 25, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.