Renting can be cheaper than owning initially, but over time, purchasing a home wins out.
Jonathan Smoke, the chief economist of Realtor.com, crunched the numbers on renting vs. owning. Based on the median home price, median rent, average costs for upkeep, insurance, and property taxes, and 2 percent inflation, home equity starts to surpass rental savings after three years. Annual owner costs as a whole become cheaper than rental costs after 22 years, making homeownership a long-term play.
In Year 31, the financial difference between the two households in our illustration is stark. The renter is then spending $2,202 in rent. The owner, mortgage-free, is paying only property taxes, insurance, and upkeep for about $1,020 per month. The owner also has a home that is worth around $450,000 in inflation-adjusted dollars.
Advertisement
Related Stories
Economics
Shelter Costs Drive Inflation Higher Than Expected in January
January Consumer Price Index data show inflation increased more than anticipated as shelter costs continue to rise despite Federal Reserve policy tightening
Economics
Weighing the Effects of the Fed's and Treasury's Latest Announcements
The upshot of the Jan. 31 announcements is that while mortgage rates will stay higher for longer, they're likely to hold steady
Economics
NAHB CEO Tobin Says 'Housing Renaissance' on the Horizon
Responding to positive housing-related data such as falling mortgage rates and increased homebuyer activity, NAHB's CEO Jim Tobin is optimistic