Computing the total expense of homeownership is not easy. The costs vary from person to person, from city to city, and from time to time, because of both market conditions and tax treatment. A recent NMHC research paper (available upon request) offers one method of summarizing this diverse national experience. The study estimates how the housing costs — properly measured — of the typical home buyer in the mid-1980s would have compared with their costs had they rented identical housing.And they present several home-ownership "myths" (from 2004):
That research concludes that, when all the costs of owning and renting housing are considered, a majority of all families and individuals that bought a home in the mid-1980s would have saved money by renting comparable housing. Specifically, the study estimates that the average homebuyer in 1985 paid six percent more for housing during his residency in that house than if he had rented.
The costs of owning were particularly high for short-term owners, according to the study. Buyers who sold within four years of purchase on average paid 19 percent more as owners than they would have paid as renters. For these short-term owners, transactions costs averaged 23 percent of their total costs of owning.
These cost estimates make no allowance for the home-owners' time spent in the process of buying and selling, which typically far exceeds the time spent by renters in securing their housing and subsequently moving out.
Myth: I'll reduce my tax bill if I buy a house.Of course, this organization is probably as trustworthy as the National Association of Realtors, but we hear so much of the Realtors' spin that I thought I'd post the counter-argument.
Reality: A majority of homeowners reap no annual tax benefits from owning a house.
Myth: Paying rent is throwing away money.
Reality: For the first five years of ownership, you are simply giving away your money to a bank. Nearly one-third of all buyers move within five years before they start building any real equity.
Myth: My mortgage payment will be less than my rent.
Reality: Your mortgage payment is just the beginning. The "hidden costs" of ownership can add up to thousands of dollars a year.
Myth: As an owner, my housing costs will stay constant. I won't have to worry about rent increases.
Reality: Your mortgage may remain constant, but other costs, such as maintenance, insurance and property taxes can go up significantly every year. And if you have an adjustable-rate mortgage, your mortgage payment itself can increase.
Myth: Investing in a house is a safe investment.
Reality: Even in today’s healthy housing market, stocks and bonds often still offer a better return.