Buying a house still beats paying rent

Talk about a Catch-22! Housing prices are down so it's a perfect time to try to buy. Banks are restricting their lending, so it's an impossible time to get a mortgage! I feel for the young people trying to purchase their first home.

We've owned for several years, and are lucky enough to be mortgage-free. We're in the minority, that I know! But I'm glad we have that as a backup if we're ever in a crunch. Reverse mortgages or drawing on equity won't work if you're a renter. Furthermore, the real estate market usually turns itself around. I view home ownership as money in the bank.

Although the housing market price are down and the interest rate are low, still there are too many things to conside if someone is planning to buy a house. It is a common saying "Your house is your biggest investment (ASSET)". It is wise to consider how much you can afford every month to pay your mortgage and if thre still enough money left your family table.

With renting, you're actually paying your landlord's mortgage. It is only good for a short period of time and everyone should plan early on how they can afford to own their dream house!

deybz
Toronto, ON

Common sayings about home ownership does not make it true or right. Really that is just propaganda spins by banks and real estate agents to get us all caught up in a lifetime of servitiude to them. Paying the fool landlord's mortgage, so what? Are you jealous, that those landlords are actually forced to be landlords due to their decisions to buy property. It is this type of thinking that has driven up housing prices and made it unaffordable to most. It just isn't good value for the money to buy now. All the people who bought property at incredibly inflated and overvalued prices refuse to believe reality. This UBC prof - is he an economist? Like they got everything figured out! He probably is trying to sell a Vancouver condo but can't.

Renting at first glance seems cheaper. Yes ownership is more expensive at first. But think about this...if you buy a home you will be paying on avg 25 yrs for it. Your payments are fairly constant (depending on mortgage rate) after you done you have no more payments to pay. On the other hand a renter will pay rent and it will increase over time as property values go up.

Pay a little more and own in 25 yrs or pay rent for life.

if it costs you $600 a month less to rent then why buy, people who buy have absolutely no idea how much money they actually throw out in interest, property taxes and maintanance..even if the value goes up..you still made no money..you already paid for it through what I mentioned above.

Dont confuse 'investment' with 'asset'..an investment is when I put $1000 into a stock and 10 years later its worth $10,000..house is never an investment as you pay for any increase through interest, prop taxes and maint on a monthly basis. Even if you paid cash for the house, prop taxes and maint would still eat up any increase over the years.

owning is great if done smart, alot of people over buy and then eat KD and water just to OWN..not smart.

Huh? Where can you rent a house for $600/month? In the middle of the forest? And annual property taxes are generally only about 1% of the home's value. Sure, you probably won't make the killing the boomers did but once you move beyond 1 bedroom apartments buying has to make more sense even if you have to do some repairs from time to time. It is possible to buy too much house, sure, but that's a different issue.

Ben Stein wrote a similar article to the one posted which also helps to crunch the numbers (http://finance.yahoo.com/expert/article/yourlife/21845) but I think he does a better job explaining the emotional side of home ownership and how that factors into decision making. If you're looking to make a profit on your home, then no, this is not yet the time to buy and you should continue renting. Think of it this way, if you purchase a home today and it fall 1% next month, how much would you have lost? The value of one month's rent or more? Of course, if you think housing will rise in the near term, then you should buy now. However, if you think the market will continue to bottom, it's worth you while to wait. Housing is typically cyclical and we've only started to head into the downturn so there should be quite a ways to go before we finally level off and the upturn begins. Personally, I expect to wait another 1-2 years before wading into the buying market but I know it's hard to keep your head on with all the tempting interest rates and deals being advertised. When faced with temptation, crunch the numbers and check your emotions at the door.

This is a reply to the following wrong assumptions:

"Dont confuse 'investment' with 'asset'..an investment is when I put $1000 into a stock and 10 years later its worth $10,000..house is never an investment... "

Depending on the time frame and purpose, a house is very much considered a long-term investment. Of course, if you are into flipping properties and you got the timing wrong, you would be in big trouble like any other investment (stocks, mutual funds, ETF, etc.).

If you are into renting properties, that is also a conscious business decision. And indeed, landlords can make money. :)

Stocks are also assets, but they are just more liquid than properties.

I recently did some research into home ownership and my findings were ridiculously overwhelming. A property valued at $223,900 which I might note is one of the cheapest on the market, is a tree with so many branches. Pease note that because this property turns out to be a condo, it had a maintenance fee of $500 per month which is in addition to mortgage which is $1436.20 calculated under the assumption that the downpayment is 5%. Another factor to consider is property tax which varies based on the assessed value of the home not what you actually paid for it. So lets say I got lucky and the purchased property is assessed at 85% of actual purchase price, I am looking at a property tax of $222.03 monthly. So after the House warming and the big "she bang", I am left wondering how the hell am I gonna pay over $2000 in housing alone. Now that I am a proud Home owner, I have to pay for added expenses that comes with the territory such as gas, water, electricty, home insurance, etc etc..

Let's back to the point of 5%, considering all the hidden fees like lawyer fees, real estate fees, closing and whatever else you might have to be before you are actually given the keys, if you can only afford 5% downpayment, you are slapped with what is called PMI (private mortgage insurance) which you will continue to pay untill you have cleared 20% of the purchase price. The banks secure their interest first so after the first year, you would have paid $17,234.39 with a whopping $13,722.42 going towards interest and a measly $3,511.97 going toward your principal......wow...at this rate when you actually get rid of this PMI? After 8 years, you would have managed to reach 20% paid on your home at which point you have paid $11,231.04 to the PMI...imagine that, just for not being able to initially come up with 20%, you are forced to pay this much extra. lets face it, many people try to own a home for that false sense of accomplishment, the pride and joy to say they have achieved something, to be a part of a social class, for summertime BBQ and the list of reasons pile up, but how many people are truly happy in their homes....working numerous overtime shifts and second jobs to avoid foreclosure because in reality they just cant afford it. then there comes Mr. Refinancing who just takes away any Equity you might have built on that home.

If I was able to pay my mortgage of $1775.22 per month which includes interest, property tax and PMI for the full term of 25 years, I would have paid $532,566 in addition to my 5% down payment of $11,195. added expenses that comes with the territory such as gas, water, electricty, home insurance, etc etc...

Let's back to the point of 5%, considering all the hidden fees like lawyer fees, real estate fees, closing and whatever else you might have to be before you are actually given the keys, if you can only afford 5% downpayment, you are slapped with what is called PMI (private mortgage insurance) which you will continue to pay untill you have cleared 20% of the purchase price. The banks secure their interest first so after the first year, you would have paid $17,234.39 with a whopping $13,722.42 going towards interest and a measly $3,511.97 going toward your principal......wow...at this rate when you actually get rid of this PMI? After 8 years, you would have managed to reach 20% paid on your home at which point you have paid $11,231.04 to the PMI...imagine that, just for not being able to initially come up with 20%, you are forced to pay this much extra. lets face it, many people try to own a home for that false sense of accomplishment, the pride and joy to say they have achieved something, to be a part of a social class, for summertime BBQ and the list of reasons pile up, but how many people are truly happy in their homes....working numerous overtime shifts and second jobs to avoid foreclosure because in reality they just cant afford it. then there comes Mr. Refinancing who just takes away any Equity you might have built on that home.

If I was able to pay my mortgage of $1775.22 per month which includes interest, property tax and PMI for the full term of 25 years, I would have paid $532,566 in addition to my 5% down payment of $11,195. Dont forget the monthly maintenance fee 500 per month, that's a whole $150,000 added after the full term.... Grand total: $693,761 for a home that was listed at 223,900....think about that

please ignore the repeats

As one who has been through this several times, lets be Realistic in our thinking. This for me would not be the right time to but, as I do not believe housing prices are even close to where they are affordable....except in Windsor, Ontario maybe. At todays prices, and given the laws of average, by 2011 interest rates will be climbing back to the norm.....thus, what would one pay on a $300,000.00 purchase, at an interest rate of say 10%......more likely than most single income families could afford on a 25 year mrotgage.

This delima is driven by the Real Estate People....not for the betterment of the buyer...........

Never use two incomes to qualify, and never exceed 25% of your gross single income to Qualify.

The lessons learned in the late 70s, and in the 90's have me at a time in my life when I am very content to give this bit of advice, for your betterment......

REMEMBER......IF IT CAN GO WRONG .....IT WILL.........

i RENT, AND WILL RETIRE RENTING BECAUSE i DIDN'T THINK THIS WAY IN THOSE YEARS.......

I suppose renting is right for some people, and in certain market conditions makes sense, but buying, especially when prices are low is much more stable. I never had a landlord who cared about their tenants. Our first house was small, older and affordable, and we loved it! Sure it needed some upgrading and constant maintenance, but in the end 7 years later we almost doubled our money. Plus we were free to do with it what we wanted. I don't know how many people I know were told they had to move because some landlords family member needed the house/apartment. As far as a $225,000 condo being the cheapest thing on the market, you're in the wrong market, commute!

I did the calculations rent vs buy.. I am an accountant with an MBA in Finance and did a fair amount of research on the answer to this question.

Answer is "rent"

Compare your rent vs mortgage. Don't forget to calculate the amount of interest you pay over the whole term of loan. Add mainteance, property taxes, heat and hot water, and insurance as well. Then basically take the difference in $$$ and invest in stock market - use an average rate of return for stock market. Also factor in a % for house increase in value. Compare the two over 20 to 25 years...

You will find that renting is a "sure" winner.

This is only the financial side to it though. There are of course personal reasons to buy a home.

I basically keep stockpiling money in the stock market/bonds etc...
plus I am not cash strapped at the end of month.. I really enjoy the freedom of it all.

Renting is great and it pays off right away especially in this economy. 3 years ago, I went from a $2000 a month mortgage to selling and renting for $1200 in a better location. I purposely put aside the savings and bought a car for one of my kids. I travel much more since I did that rental move which I love and give my kids generous allowances and travel too. My kids university funds? - got that covered too by those savings. I was in a rental that had construction next door so I had the flexibility to get another rental in a quieter location. I feel sad as I walk down some streets and see these baby boomer home owners having to rent out basements or floors of their houses to meet mortgage payments or because they lost jobs. They are thinking that these houses are an investment to sell in the future for lots of money to support their retirements - there is physically not enough people to replace the baby boomer generation in Canada and USA and young people do not want to own those big old barns!
Ever watch Seinfeld or Friends? Even Jerry rents - yes I know those are TV shows. I have owned houses in different provinces and have been a landlord - what a pain and waste of one's life energy! I am now much happier,richer in present terms, and freer, with much more time for quality of life and family rather than have to fix a leaky roof or deal with another property tax increase.

Your're not serious are you? Lets pretend you spent $2500 on rent this year. Cost is $30,000. Property to buy 500,000. The value went down $100,000 this year. You just saved $70,000 and COUNTING. Where do you get this notion that its better to buy? Now you have payments of $2000 per month going to the interest and principal. You paid approx. $2000 down on your mortgage after you just finished paying your GST Land Transfer taxes and Lawyers fees and the value will keep dropping for the next several years. HELLO OUT THERE!

I am so proud of everyone who had been putting in valuable words of wisdom. I personally knows someone who makes over 120,000 per annum and still rents. I asked him why? He said it works for him. I will prefer to rent as long as possible but I know that I will eventually have to buy because of family and other personal reasons.
The minimum I can do now is to save the difference between renting and owning. The thing that we should all remember is that at the end of it all, a lot of folks default back to renting because the kids are out of the house and it doesn't make sense for 2 people living in a 6-bedroom house, with empty rooms and paying all the crazy bills. To own a home, please make sure you have enough reserve set aside. Also, I support having at least 20% in down payment.

Renting come on! spend $1200.. month for 60 years is $864,000.00 with nothing to show for it. Plus you usually have condo fee's, parking expenses, limited room, and a landlord (or boss if you will) telling what you can and can't do!

If you pay a mortgage weekly you're done in 25 years and you have equity built in, not to mention something to leave your kids to help them not have to rent or pay a mortgage. It's no wonder people are going bankrupt, they don't seem to know how to manage money or think of the future. Buy a fixer upper and put some work in to your INVESTMENT.

Stocks might be more liquid but they won;t keep you warm, dry, and safe. And if you are forced to sell you can lose just as bad, look at everybody now.

In addition to the comment above, I feel renting can be better at a personal level as well. With extra disposable income each month, it can free a person in many ways....

It can reduce pressure to work overtime, and therefore more time for kids and family - they are only young once, a house can't buy that time back for you.

More vacations and good times with your family. Trips to Europe etc. Up to the age of 25 , it was always very important to me to buy a home. When I calculated how much it costs, I was shocked. No trips to Europe for me!!!. So I changed my mind and I am glad for it. No more waiting until I am retired to see Europe. Forget taking the "walker" and defibrillator, I am going now. My twenties, thirties and forties are the best years of my life and I am going to enjoy them with my family. Remember what Pierre Burton said, "They may call retirement the golden years, but they are far from golden" .

it's nice to own but if your rent is cheap why not. houses have many hidden costs. if you live in a house for 25 or more years expect to change all your windows, your roof, paint several times, fix/renovate bathrooms and kitchen, fix/install new floors, new doors, replace furnace, fix a/c, call a plumber and electrician several times, fix fenses, fix garage door, repave driveway, fix exterior problems like foundation cracks, remove atree or two, garden costs, purchase lots of furniture, pay all utilities and property taxes, and the list keeps going. factor all the interest from your mortgage plus other suprises like a flood in the basement that isn't covered fully by insurance. ya renting is stress free and if you by good stocks and bonds plus put aside some in a savings account you should be better off financially.
lets do some math i rent a house for 1400 plus utilities which are approximately 400. so 1800a month 21600 for the year over a ten year period with modest rent increases lets say i give in total 250000.
my freind buys a house in brampton for 350000 puts down 50000. his mortgage is over 20 years. his monthly payments are 2200 plus 900 for his house costs. he pays 3100 a month and 37000 for the year. after 10 years he has payed over 400000. over the next few years major repairs are needed.
after 20 years his mortgage is payed off with all repair costs he has payed some 800000. i've payed some 550000. lets say he decides to sell and his house is now worth 800000, he'' pay real estae costs of 5% thats 40000laywer fees 2000. okay i made my point over and out

Get real you folks think your rent is going to stay at $1200.00 bucks a month forever? Get a grip you paying in to nothing and if you take pride in your house and maintain it you won't need major repairs.

there is absolutely no way renting is better than buying, and if you want to really make money - build yourself!! you save an instant 50% dont use a builder