The Renting Bubble – You think its smarter to rent than to buy? The numbers say you are wrong!

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October 23, 2011
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“But I don’t want to ‘settle!’ This is a buyers market – I should be able to get everything I want!
October 26, 2011

Right now we’ve got a renting bubble. At this point it is almost as irrational as the housing bubble of 2005.  Just as scarfing up McMansions with no money down loans was irrational – now many potential buyers are obsessed with renting to  a point where they are hurting their own self- interest.

Right now home prices are bouncing along the bottom and  there is very little – if any – air left in these price points. Thanks to these super-low prices  and record low interest rates – owning a home hasn’t been this affordable since the dark ages.  Well – OK – that’s an exaggeration  – but we are near 50 year affordability levels – making this a once in a generation opportunity to purchase a home.  Meanwhile rents are rising faster than I can blink.   Yet buyers that are perfectly capable of purchasing in today’s market are STILL sitting on the fence thinking that if they are smart they can swoop in at the bottom point of the market and steal a house.  At this point, such a victory might be a bit hollow.  If a buyer could manage this, they might have some bragging rights, but it wouldn’t save them much – if any money.  The reason is that they are throwing away substantial sums every month that they continue to rent and that situation is going to get worse, not better.

So – if you think that somehow you are saving money by renting? Take a look at these numbers on a $210k listing:

  • Let’s say you take out a standard loan of $190,000.
  • At 4.2% interest – your monthly payment is $880/month
  • In my example your taxes and maintenance combined is $779/month.
  • Your total GROSS outlay is $1659/ month.
  • A comparable rental ranges from $1800-1900 a month.

Even without calculating tax deductions – a buyer is saving $141-$241 a month or ($1692 to $2892 a year)

We didn’t even factor in the tax advantages and amortization…

The savings don’t end there because  There is more – much more.

Mortgage interest deduction and property tax deductions  combine to save the buyer an additional  $284 a month in my example.  (I am assuming the 28% marginal rate on this).

This bring the net outlay to $1375 a month.  
That’s a savings of $ $425-525 a month in savings…or…cha, cha, cha, ching…$5100-$6300 a year.

But we are not finished yet…what about amortization…the amount of money that a home owner pays to pay down the principal owed on the loan?   …In this scenario that is about $3061 a year.

So a buyer is roughly $8161 to $9361 ahead of a renter over the course of a year.
This is not exactly chump change.  Who wouldn’t want to save that kind of money? So   I have to ask buyers who sit endlessly on the fence: what on earth are you waiting for?

The only person getting rich if you rent is your Landlord!

© 2011 – Ruthmarie G. Hicks – – All rights reserved.

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