Curious, how often do you think people live in their houses for 30 years? I think that is slanting the favor towards owning.

Once you cut it down to 10 years (in the calc) you find that renting is actually more beneficial.

So the situation varies…

MLR

I enter 800k house, this is common in the area you live. 4.5 interest, 10 percent down, house appreciation -1%. of course 30 years term and live there for 30 years. rent $2100. I have to admit this is in the middle to high range rent, you can live a decent place with this kind of rent. rent increase 2%. It comes out buying a house is ahead.

People may argue interest is low. My primary is 4.5% (3/1 ARM), second is 4%. so Interest can be a little bit lower if you have good credit. Of course, there is risk with rate sky rocket in a few years. I will not argue that.

Anyway, hope all goes well with you.

Many people have always believed the fallacy that renting is “throwing your money away” when in actuality it’s not when you consider all of the extra expenses and transaction costs that go with buying and maintaining a house that renting would otherwise allow one to not worry about. It’s a shame that many people belive it. It’s a fallacy that’s been passed on from generation to generation to the point that many folks (and we know that most folks truly don’t have the financial savvy to crunch the numbers) take it as truth.

However, I know that someday I’ll buy a house, and that’s because I see other benefits of owning. When I get married and start a family, I’ll generally want a place to call my own for my family. It’ll be a place where I have ultimate control over the premises and not have to worry about being evicted and whatnot. Plus, it’s at that time of starting a family where I’ll feel more tied to an area in where I’ll settle for a pretty long term to realize some semblance of financial benefit (relatively speaking, of course). Furthermore, by this time, especially when I start to have children, I’d want a larger place, and it’s generally a lot easier to find a home of, say, four bedrooms, than a rental.

I live in the UK and I’d move to San Francisco if I could afford it, and figure out my job later! (Friends did in their twenties).

Didn’t I read once that half the city’s population was non-native?

Good post though, am linking in my weekly roundup. :)

Yet the population of California has grown every hear from 34M in 2000 to 36.7M in 2008.

People do migrate from California to other states, but the states population growth more than makes up for that outflow. Birth rate outpaced deaths more than 2 to 1. Also international (legal) immigration to CA outpaced emigration to other states. Even with 0% international immigration there would still be population increase since 2000.

Also the Census underestimated San Francisco population by about 35K so theres actually 799k people there, more than 1950:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/13/BAUD14N3S7.DTL

But yes there is very low growth rate in population within city limits. That doesn’t mean people won’t pay more to live there or that housing costs should stay flat or something.

Jim

From what I found… in an area where rentals are $1,200 the housing prices are about $300,000-350,000. So with those prices it made absolutely no sense to own. And I like being more relocation-able :)

As the housing market has continued to slide I would say the rentals seem to be around the same and the housing prices have come down about 10%. Still not worth it for me.

Is renting the place = interest payments on your home loan + HOA fees + Home Insurance – inflation +(-) home appreciation + (difference between the standard deduction and itemized deduction since you will itemize due to interest * your tax bracket) – Interest you loose on your down payment (money market interest). If the right hand side is lesser than you made a deal.

Check out the all in one calculate at dinkytown.net and select buy vs rent.

So, I guess the big question on the table for LazyMan in my eyes isn’t just buy vs. rent, it is children vs. no children. I think that decision will drive the buy vs. rent decision in the proper direction.

The first question you have to ask yourself is, “Where do I want to live?” I think this question should be answered first without financial considerations. It’s a lifestyle choice. With that answer in mind, then decide if it makes more sense to rent or own.

The only ratio that has served me well over the years is to keep my housing costs lower than 30% (preferably 25%) of our household take home pay.

California is still nowhere near where it needs to be. Don’t give into the pressure. It was just a decade ago where the metrics you site were true and we are in a WORSE economic situation then before. What on earth justifies the numbers staying that hi?

Median house prices relative to median income just isn’t constant enough through time or across geographies. It’s always been high in SF and Boston (where it has just started snowing again, BTW) and probably always will be.

And even 150 times rent is a screaming bargain as a purchase price. It works out to a locked in 8% return on your money. Yes, there are property taxes and maintainance, but the income tax benefits are substantial. And there’s always inflation to consider: renters pay more and owners own more.

I think we made financial mistake buying, because while it was cheaper for us to Buy versus Rent a comparable unit, we could have Rented for $1k less a month a much smaller place!

We could be renting a 1 bedroom for $1600-1800 instead of $2200/month 3 bedroom mortgage.

So how to reconcile that? It is a lifestyle choice. We no longer wanted to rent a small place. We wanted to rent a larger unit. However, even 2 bedrooms in our area run around $2k so then it became more of a moot point.

Some other good rent/buy posts that I enjoyed were:
SmartMoney: Why Rent, to Get Richer
http://articles.moneycentral.msn.com/Banking/HomebuyingGuide/WhyRentToGetRicher.aspx

and

Millionaire Mommy Next Door: Rent, Grow Rich, Be Free
http://millionairemommynextdoor.blogspot.com/2007/10/rent-grow-rich-be-free.html

Further proof that Chicago real estate has farther to fall: she’s trying to rent it, now, for less than her monthly expense, and hasn’t had a single bite in the 3 months it’s been listed.