Buying a Home is Now Far More Expensive Than Renting
Every day, families and individuals across the country face the decision regarding whether to buy a home or to rent. While many factors contribute to that decision, one major consideration is the comparative difference in cost between the two options. Due in large part to pent-up demand, the scarcity of willing sellers, and the highest mortgage rates in recent history, buying a home is now 52% more expensive than renting a house or apartment on average across the U.S., according to a recent analysis by real estate firm CBRE.
A common argument made in favor of buying is that it allows people to build equity in the house asset rather than "dumping money down the drain" with rent. Another is that mortgage interest is tax deductible. It's important to keep in mind, however, that during the first 15 years of a 30-year mortgage, a vast majority of the mortgage payment is going toward interest paid to the bank and only a small amount is paying down the principal debt amount.
Additionally, while mortgage interest can be itemized for a tax deduction, the standard deduction without itemization for a couple is now $27,700, so the marginal benefit of foregoing the standard deduction in favor of itemization is less valuable than it used to be. Also worth noting are home maintenance and homeowner's insurance costs, which are not included in that 52% average cost premium currently associated with home buying, and which can add significant (and often unpredictable) expenses to owning a house.
Non-financial reasons to purchase a home may include long-term predictability for not moving locations, or the ability to renovate and make changes to a property as desired. Depending on circumstances, the additional cost may be worth the specific value proposition offered by owning rather than renting. However, potential home buyers should be aware of the relative financial impact and incorporate that as appropriate into their decision-making process.
Read more on this subject here.
- Tony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management
