Should I rent or buy?...the age old question

By Al Ricci


The housing market across California has had large price gains over the past years, with statewide median prices attaining November 2007 highs. Consumers often contemplate whether it is more beneficial to buy a property now, or continue renting. To assist with this decision, the California Association of Realtors has looked at the costs and benefits of renting versus owning property in California, and eight of its local regions over a seven-year time horizon.

The costs of buying include the monthly mortgage payment, insurance and taxes, and improvements and repairs. These costs were offset by the benefits of buying: mortgage interest and property tax deductions, and investment appreciation. The costs of renting include the monthly rent payment and renter insurance, which were offset by the benefits of renting: the appreciation from investing the down payment in the stock market.

For the State of California, consumers can save 96.5 percent per month by buying a property. At the local level, buying in Orange County will save 107 percent per month.

These results are based on the assumption of a 20 percent down payment. A veteran can put zero percent down, or FHA, 3.5 percent down, which may produce a lesser yield, but is offset by less cash up front.  Again, over the seven-year horizon, buying makes sense financially in our area.

Along with incorporating price levels, the analysis includes tax deduction benefits; the costs associated with homeownership, including general upkeep, inflation, insurance, mortgage rates; as well as the opportunity cost of not investing in the market.  On the rental side, it annualizes average rent and rent increases for the county (e.g., it would understate the benefit of renting a rent-stabilized unit) and includes rental insurance and security deposits. 

Feel free to use these assumptions on markets and prices to guide you, or try the Realtor.com Rent Vs. Buy Calculator.

To help turn renters into buyers, please check out the Down Payment Resource, a search tool that can identify available down payment assistance programs. Your local realtor knows the benefits of homeownership.  The most affordable time to buy is now, for the future.