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Buying a Home 44% Cheaper than Renting Despite Rising Home Prices

Created  Apr 3, 2013

Low mortgage rates have kept homeownership less expensive than renting in all 100 large metros


Even though asking home prices rose 7.0% in the last year, outpacing rent increases of 3.2%, the gap between buying and renting has narrowed only slightly. One year ago, buying was 46% cheaper than renting. Today’s it’s 44% cheaper to buy versus rent. In fact, homeownership is cheaper than renting in all of America’s 100 largest metros. That’s because falling mortgage rates have kept buying almost as affordable, relative to renting, as it was last year. According to Freddie Mac, between February 2012 and February 2013 the 30-year fixed rate dropped from 3.9% to 3.5%, though rates have been rising in March.

 

To determine whether renting or buying a home costs less, we do the following:


  1. 1. Calculate the average rent and for-sale prices for an identical set of properties. For this report we looked at all the homes listed for sale and for rent on Trulia from December 2012 to February 2013. We estimate prices and rents for the similar homes in similar neighborhoods in order get a direct apples-to-apples comparison. We are NOT just comparing the average rent and average price of homes on the market, which would be misleading because rental and for-sale properties are very different: most importantly, for-sale homes are 47% bigger, on average, than rentals.
  2. 2. Calculate initial total monthly costs of owning and renting, including maintenance, insurance, and taxes.
  3. 3. Calculate future total monthly costs of owning and renting, taking into account price and rent appreciation as well as inflation.
  4. 4. Factor in one-time costs and proceeds, like closing costs, downpayments, sales proceeds, and security deposits.
  5. 5. Calculate net present value to account for opportunity cost of money.

 

To compare the costs of owning and renting, we assume people will get a 3.5% mortgage rate, reside in the 25% tax bracket and itemize their federal tax deductions, and will stay in their home for seven years. We also assume buyers get a 30-year fixed-rate mortgage and put 20% down. Under all of these assumptions, buying is 44% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period. We also look at alternative scenarios by changing the mortgage rate, the income tax bracket for tax deductions, and the number of years one stays in the home. Our interactive map shows how the math changes under alternative assumptions. And if you’re interested, check out our detailed methodology which explains our entire approach, step by step.


Savings from Buying Versus Renting Smallest in California and New York, Biggest in the Midwest
Buying a home is cheaper than renting in all of the 100 largest metro areas, but buying ranges from 19% cheaper than renting in San Francisco to 70% cheaper than renting in Detroit. The financial benefit of buying instead of renting is narrowest in San Francisco, Honolulu, San Jose, and New York.

 

Over the past year, the gap between renting and buying has narrowed most in the Bay Area. One year ago, buying was 35% cheaper than renting in San Francisco and 38% cheaper than renting in San Jose; now, the difference is 19% and 24%, respectively. These metros have seen strong price increases year-over-year. In contrast, the gap didn’t narrow at all in New York, where buying remains 26% cheaper than renting, both now and a year ago. On Long Island, the difference actually widened from 34% one year ago to 36% today. New York, Long Island, and other Northeastern metros have seen more modest price rebounds over the past year, despite rising rents:


Where Buying a Home is a Tougher Call

# U.S. Metro

Cost of Buying vs. Renting (%), 2013

Cost of Buying vs. Renting (%), 2012

1 San Francisco, CA

-19%

-35%

2 Honolulu, HI

-23%

-26%

3 San Jose, CA

-24%

-38%

4 New York, NY-NJ

-26%

-26%

5 Albany, NY

-30%

-34%

6 Orange County, CA

-32%

-41%

7 San Diego, CA

-33%

-42%

8 Los Angeles, CA

-35%

-37%

9 Long Island, NY

-36%

-34%

10 Ventura County, CA

-36%

-43%

 

Note: Negative numbers indicate that buying costs less than renting. For example, buying a home in San Francisco is 19% cheaper than renting in 2013. Trulia’s rent vs. buy calculation assumes a 3.5% 30-year fixed-rate mortgage, 20% down, itemizing tax deductions at the 25% bracket, and 7 years in the home.

 

At the other extreme, homeownership is most affordable in Detroit, where buying is 70% cheaper than renting. This means it costs less than one-third as much to buy a unit than to rent a similar unit in a similar neighborhood. In fact, buying is less than half the cost of renting (more than a 50% difference) in 46 of the 100 largest metros.

 


Where Buying a Home is a No-Brainer

# U.S. Metro

Cost of Buying vs. Renting (%), 2013 

Cost of Buying vs. Renting (%), 2012 

1 Detroit, MI

-70%

-69%

2 Dayton, OH

-63%

-70%

3 Gary, IN

-63%

-60%

4 Cleveland, OH

-63%

-57%

5 Warren-Troy-Farmington Hills, MI

-63%

-64%

6 Toledo, OH

-62%

-59%

7 Memphis, TN-MS-AR

-62%

-61%

8 Kansas City, MO-KS

-60%

-55%

9 Birmingham, AL

-59%

-60%

10 Indianapolis, IN

-58%

-56%

 

Note: Negative numbers indicate that buying costs less than renting. For example, buying a home in Detroit is 70% cheaper than renting in 2013. Trulia’s rent vs. buy calculation assumes a 3.5% 30-year fixed-rate mortgage, 20% down, itemizing tax deductions at the 25% bracket, and 7 years in the home.

 

In the largest metros, the rent-versus-buy decision depends largely on location. Within the New York metro area, buying is just 6% cheaper than renting in Manhattan, but 53% cheaper in suburban Westchester County. This, however, is an extreme example. The differences within most metros aren’t quite so stark. In the Los Angeles metro area, buying is 22% cheaper than renting in the Pasadena / San Gabriel Valley area (telephone area code 626), while buying is 36% cheaper than renting in the San Fernando Valley (area code 818). The difference between the 626 and the 818 is a lot smaller than the difference between Manhattan and Westchester.

 

Here’s How Renting Could Be the Better Deal
Three factors have a real impact on the rent-versus-buy math: mortgage rates, tax deductions, and how long you stay in your home. Change any of these factors, and buying a home won’t look quite as inexpensive relative to renting. Using our baseline assumptions of getting a 3.5% mortgage rate, deducting at the 25% bracket, and staying in your home for 7 years, buying is 44% cheaper than renting nationally. Here’s the “but”:

 

  • Lower mortgage rates lower the cost of owning. While buying is 44% cheaper than renting with a 3.5% mortgage, buying would be 39% cheaper than renting at 4.5% and only 33% cheaper at 5.5%. Higher rates mean a higher cost of owning, but prices today are low enough relative to rents that buying would beat renting even if mortgage rates rose two full points.
  • Itemizing deductions lowers the cost of owning. Mortgage interest and property tax payments are typically deductible. If you itemize deductions (at the 25% tax bracket) regardless of whether you own or rent, buying is 44% cheaper. Without itemizing (read: you’re just taking the standard deduction), buying is still 35% cheaper than renting. This means that even if tax deductions were eliminated entirely – don’t worry, no one in Washington is seriously proposing anything that drastic – the rent-versus-buy decision probably wouldn’t change that much. Though it would probably encourage people to buy smaller or cheaper homes.
  • Staying put longer lowers the relative cost of owning. The combined cost of buying and then selling a home can easily total more than 10% of the home’s value. Staying put longer means, in effect, spreading those costs over more years. Buying is 44% cheaper than renting if you stay put for 7 years, 37% for 5 years, and 20% for 3 years.

In other words, depending on your circumstances, buying could be a bad deal. Suppose you stay put for only 3 years AND don’t itemize your deductions (lots of homeowners with mortgages don’t itemize, by the way). Even with a 3.5% mortgage, buying would be only 9% cheaper than renting nationally. And in many markets, buying would be MORE expensive than renting if you stay put for 3 short years and don’t itemize: buying would be 2% more expensive than renting in Boston, 9% more in Los Angeles, 26% more in New York, and 45% more in San Francisco. Clearly, buying is not for everyone — especially if you live in a more expensive housing market.

Budget Your Move

Created  Aug 13, 2012

Budget Your Move

 

 

 

 


Before you move, it’s important to draft a detailed budget. By identifying all of the different items and outlining their costs, you’ll be able to monitor your spending to help you stay on track. Moving your household can be very chaotic if not properly planned. It can also be very expensive if you do not take the necessary actions to reduce this cost. However, reducing the cost and stress associated with a major household move is actually quite simple. The following tips will allow you to dramatically cut costs and stress.


DIY move

At first glance,moving yourself may seem like a cost-effective option, and it is if your new home is close to the old one. But, if you’re moving a longer distance, you’ll have to budget for costs over and above the truck rental. Consider the following:

  • Taking time off work
  • Filling up on gas
  • Buying packing blankets
  • Renting hand trucks and dollies
  • Providing food and beverages for your helpers
  • Paying toll fees
  • Renting hotel rooms
  • Getting additional insurance coverage
Hire a professional

When it comes to finding the right mover for the job, word of mouth is certainly a valuable resource. But make sure you do your research by getting estimates from several reputable companies. Get more than one moving estimate. Talk to several moving companies and compare the quotes they give you. As you look at the numbers, don't be afraid to use a critical eye and don't settle for a final quote until the moving professional takes an in-person perusal of the belongings you need to have moved. An over-the-phone quote won't do; this needs to be on-site so that the mover can see everything. Then you can be sure to have a more accurate quote. Without it, you set yourself up for charges you didn't anticipate. Ask if the quoted price includes professional packing and if the insurance provided by the company meets your needs. Like so many services, the old saying “You get what you pay for” rings true. Don’t just settle for the best deal; make sure the service meets your needs.

Packing essentials

While certain expenses are obvious, it’s the little things that often add up. Almost all of us are keeping possessions that we do not actually use or need. And considering that the price of the move is usually based on the weight of what you are shipping, it doesn't make sense to bring along anything you aren't planning on keeping long term. Sorting through your attic, garage and closets before packing can save you money, not to mention unpacking time. Sell any items that you don’t need. If you live in Vermont and are moving to Florida, it doesn't make much sense to bring your ski gear and parkas. Selling such items locally, or on an internet auction site, will both lighten your load and provide you extra spending money to use while getting settled in. If you don't have the time or energy to sell anything, consider donating the items to a charity auction before you set off. You will be doing someone good, and saving the receipt will help you quality for valuable tax deductions come April.

Consider timing

  1. Moving is a family affair and impacts everyone involved. If your children are still in school, the summer is a less disruptive time to relocate. However, make sure you check moving-company schedules and prices, since peak periods often mean higher rates. And don’t forget to factor in child care. Hiring a babysitter will keep your kids entertained and out of harm’s way, leaving you to focus on the tasks at hand. It isn't always possible to be choosy about when you are going to move, but if it is, it can save you a lot of money. The demand for movers tends to be at its highest on weekends, the end of the month and in the middle of summer, so asking your moving company to schedule your move away from these peak times can save you up to 30%.

 

 

Source

Budget Your Move | The Home Depot - Moving. (n.d.). Moving Supplies & Moving Truck Rental at the Home Depot. Retrieved August 8, 2012, from http://www.homedepotmoving.com/1252/budget-your-move?cm_sp=moving-_-Plan_your_move-_-Budget_Your_Move

Created  Jul 30, 2012

Forbes names Houston Coolest City to Live

Houston City-Scape

 

Houston is known for many things: Oil, NASA, urban sprawl and business-friendly policies, but Houston deserves to be known for something else: coolness.  Houston has something many other major cities don’t: jobs. With the local economy humming through the recession, Houston enjoyed 2.6% job growth last year and nearly 50,000 Americans flocked there in response — particularly young professionals. In fact, the median age of a Houston resident is a youthful 33.  The result? Over the past decade, the dreary corporate cityscape has been quietly transforming. Stylish housing developments have popped up downtown, restaurants have taken up residence in former factories and art galleries like the Station Museum have been inhabiting warehouses. Combine that with a strong theater scene, world-class museums and a multicultural, zoning-free mash up of a streetscape and you have the recipe for the No. 1 spot on Forbes’ list of America’s Coolest Cities to Live.

 

 

Behind the Numbers
Forbes sought to quantify it in terms of cities, ranking the 65 largest Metropolitan Statistical Areas and Metropolitan Divisions (areas that include cities and their surrounding suburbs that are defined by the U.S. Office of Management and Budget) based on seven data points weighted evenly. Sperling’s Best Places helped calculate the number of entertainment options per capita in each metro area. It also ranked the cities based on other recreational opportunities, including the amount of green space, the cost and number of outdoor activities like golfing and skiing available, and the number of pro and college sports teams. Forbes tallied restaurants and bars per capita, weeding out chain establishments. Forbes also looked at each city’s cultural composition using. It measured the likelihood of meeting another person of a different race or ethnicity. Using the most recent data from the U.S. Census Bureau, Forbes factored in median age, favoring places with a large young adult population. Cities were ranked based on net migration (the number of people who relocated there in 2011) and also on unemployment rates, since a city’s offerings are only as good as the amount of people who want and can to afford to enjoy them. This data was culled from data from the Bureau of Labor Statistics and Analytics.




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