Buying vs. Renting

This post on buying vs. renting a place to live was prompted by (a) a recent New York Times column ("In Sour Home Market, Buying Often Beats Renting"), as well as (b) a few of the folks on my friends list have either recently bought, or are looking (congrats Q!). In addition, (c) I was looking into this during the past few months, when I thought that my living situation would be changing (actually not the case, now).

First of all, as background, if any of you haven't seen it, I described what I would ideally be looking for, back in 2008 ("The Most Tenuous of House Plans"). But moving on, specifically, to the New York Times article:

In much of the country, for much of the last decade, renting a home has usually been a better financial move than buying one. It’s been true in Southern California, San Francisco, Phoenix, Las Vegas and large parts of Florida, the Pacific Northwest and the Northeast.

Now, however, the situation is getting more complicated because the housing bust has been playing out unevenly across the country.

...

In some once bubbly markets, prices have fallen so far that buying a home appears to be a bargain, based on a New York Times analysis of prices and rents in 54 metropolitan areas. In South Florida, Phoenix and Las Vegas, house prices — relative to rents — are as low as in places that never experienced a bubble, like Indianapolis and St. Louis.

But in a handful of other areas, including San Francisco, Seattle and Portland, Ore., house prices remain significantly higher than they were before the bubble began. People who buy a home in these areas will face higher monthly costs than if they rented, even after taking tax deductions into account. As a result, buyers are effectively betting that prices will rise enough in future years to cover the difference.

They offer up a simple lookup, to first figure out if buying or renting makes more sense:

A simple way to do the comparison is to look at something called the rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. The number 20 provides a useful rule of thumb. When you do the math, you discover that a ratio above 20 means you should at least consider renting, especially if you may move again in the next five years or so. When the ratio is well below 20, the case for buying becomes a lot stronger.

Interesting. They have a table of Rent Ratios; it shows that Boston fell from 21.8 to 17.6, between 2005 and 2009. Promising... but it doesn't cover an individual's specific case. However, they have an interactive calculator, which lets you enter current rent, home price, down payment, interest rate, etc.. A typical plot looks like this: the tan portion shows the point at which buying makes more sense than renting:


Interesting. However, I know that I have really cheap digs, splitting a two bedroom place near Arlington Center with JMD. Also, when I was looking around for places, it seemed like one bedroom condos started out in the $300,000 range in Somerville/Arlington-ish, and two-bedrooms started around $350,000. Let's see what that graph looks like with those numbers:


Hrm. Wow. Yes, yes, I know... half of an apartment is not the same "real estate value" as whatever I would be buying into. But frankly, what I am interested in is something that fulfills the role of, "Keeps me under a roof, okay place, in a good location," which my current spot does in spades. Living below my means?... why yes, I'm good with that, thanks.

There are plenty of handles and tweaks in the calculator that I'm not playing with here (property tax rates, rent increases, etc.)--I left those at default levels. But still... to me, the takeaway lesson is that financially, I should hang on to my current location as long as it makes sense.

Finally, to get a bit philosophical, I really don't have any intrinsic real estate lust or nesting instinct... as discussed in that previous blog post. I'm afraid that I fall squarely into the demographic of developmentally-challenged guys described in a 2006 New York Times article ("For Men, a Fear of Commitment"):


Still, there seems to be a consensus among brokers and buyers who have witnessed the trend that single men, even those whose college diplomas are yellowed with age, gravitate to a lifestyle not unlike that enjoyed by fraternity brothers: relatively free of commitments and rife with male companionship.

They consider buying a home detrimental to their independence, as it tethers them to one location, squelching any youthful fantasy of a nomadic existence. Indeed, for many single men without children, buying a home is a commitment akin to getting married — and they are content to put it off.

Single women on the other hand seem more interested in establishing a sense of security, or "nesting," as several brokers and buyers put it. They consider buying a home an act of independence. It is an asset, a symbol of their financial strength and proof that they need not wait for a man of means to provide them with the security they crave.

If somebody told me that at age 60 or 70, I would still be living in a rental, I don't recoil in horror or anything. Of course, I'd want to know, "Um, is it in decent neighborhood? Do I have money in the bank all right? Do I still get to go out and do fun and interesting things? And we're not talking about a 400 sf chunk of retirement home out on 495, where I'm strapped to a bed, right?" If all these answers were okay, hey, it doesn't bother me.