How often have you stood on the candy isle and debated with yourself over the type and serving size of a candy? There are a lot of factors to consider in such a decision, mainly need, cost, and diet. Buying vs renting a home is a similar predicament, only on a much larger financial scale. It’s an age old debate where there’s simply no universally correct answer because both decisions have pros and cons unique to each person’s specific set of current and future needs, price range, and financial diet.
Ultimately, however, the decision comes down to a financial one. After all, you may “need” a sandwich, drink, and that jumbo bag of M&Ms to get full, but regardless of need or want, your purchase will always be ultimately dictated by what you have money to purchase today… and possibly tomorrow.
Is it financially smarter to own or rent? The average annual mortgage and rent have both continually increased in America over the last few decades. The rate of these rises can help families better predict what will be spent on housing over a lifetime.
1960s – average rent was a little over $800 and the average home price was around $14.5 thousand. Move on to the 1970s, and the average rent was almost $2,000 and houses averaged almost $21.5 thousand. While these two figures look like an astounding difference, the actual percentage comparisons are a point apart. It’s 48.6%, or $7,017.20, exact increase in the average home price and a 47.6%, or $385.59, increase in the cost to rent over the ten year period.
At $116.2 thousand, the average home price by 1990 was up 441.5% from the 60s. Rent increased almost $4.4 thousand, or 366.5%, from the 60s, meaning that the average home price rose much more rapidly than renting costs over the 20 years. By 2013, the average price of a home had risen another 94.6 % to a median price of $226.1 thousand. While yearly rent rose 87.4% to $10.4 thousand.
Numbers from 1960 to 2013 show a difference of 274.9% more rapid home owning cost rise than rent rise. That said, a caveat to remember is that rent is paid each year… while the price of a house is typically paid out over years or decades and often with a fixed interest rate.
Use the average home price of $226.1 thousand. Figure the standard 3.05% interest, a 30-year fixed-rate mortgage, and a 10% down payment. The result is a mortgage payment of $863.57 per month that isn’t subject to increase with time. While the interest means that the actual price of the house increases to $310,885.20, the home owner is now free of any housing debt. The homeowner, unlike most renters, will have the upkeep, repair maintenance, taxes, and other homeowner-related expenses to cover.
On the other hand, a renter paying the average rent cost in 2013 (not accounting for any housing cost increases) pays $313,441.20 over the 30-year period. The renter pays more, and the figure may even be higher given that rent has steadily increased every single decade heretofore. Plus, at the end of the 30 years, the renter continues to face the cost of housing for the remainder of their life. They don’t, however, usually incur the cost of upkeep and property taxes.
All things considered, renters and home owners alike pay about the same actual costs over a lifetime for housing. It’s more about how and when those costs occur in deciding if renting or home ownership is right for your family.
Mortgages cost more upfront, have a slightly higher total cost over the life of the loan, and are attached to maintenance expenses, but these costs are typically being paid for during working years, leaving retirees more use for fixed incomes. Renters typically pay less than homeowners overall during their working years, but then are still responsible to pay for housing out of fixed incomes diets.