Renting > Owning

Here is How Renting Could Be the Better Deal

There are three factors involved that have a real impact on the rent versus buy math; mortgage rates, tax deductions, and how long you stay in your home. If any of these factors change buying a home won't look as inexpensive relative to renting. If you use our baseline assumptions of getting a 3.5% mortgage rate, deducting at the 25% bracket, and staying in your home for 7 years, buying is 44% cheaper than renting nationally. Here is the "but" 

• Lower mortgage rates lower the cost of owning. While buying is 44% cheaper than renting with a 3.5% mortgage, buying would be 39% cheaper than renting at 4.5% and only 33% cheaper at 5.5%. Higher rates mean a higher cost of owning, but prices today are low enough relative to rents that buying would beat renting even if mortgage rates rose two full points.

• Itemizing deductions lowers the cost of owning. Mortgage interest and property tax payments are typically deductible. If you itemize deductions (at the 25% tax bracket) regardless of whether you own or rent, buying is 44% cheaper. Without itemizing (read: you’re just taking the standard deduction), buying is still 35% cheaper than renting. This means that even if tax deductions were eliminated entirely – don’t worry, no one in Washington is seriously proposing anything that drastic – the rent-versus-buy decision probably wouldn’t change that much. Though it would probably encourage people to buy smaller or cheaper homes.

• Staying put longer lowers the relative cost of owning. The combined cost of buying and then selling a home can easily total more than 10% of the home’s value. Staying put longer means, in effect, spreading those costs over more years. Buying is 44% cheaper than renting if you stay put for 7 years, 37% for 5 years, and 20% for 3 years.