In Much of California, Renting More Expensive than Buying

May 3, 2012

by Mike Simonsen

3 comments

Home prices in California are stupid high, right? It must be a better deal to rent. At least in the big metros. Well not according to our friends at Movoto.com.

Movoto looked at home prices in 11 counties across the state of California and compared them to the average rents in those counties. In eight of the 11 counties, renters end up out of pocket more than buyers, sometimes a lot more.  From their press release:

  • Alameda County renters pay an additional $332/month;
  • Contra Costa County renters pay an additional $905;
  • El Dorado County renters pay an additional $330;
  • Los Angeles County renters pay an additional $174;
  • Riverside County renters pay an additional $867;
  • San Bernardino County renters pay an additional $507;
  • San Mateo County renters pay an additional $479; and
  • Yuba County renters pay an additional $248.

To complete the cost analysis, Movoto.com compared the average monthly mortgage cost and associated taxes of a 3-bedroom, single-family residence to the average monthly cost of renting an apartment. Information on the average monthly rent cost was provided by real estate data and analytic firm Altos Research, which offers the largest housing and apartment rental database in the United States.

The analysis assume a 35 percent marginal income tax rate, a 1.5 percent property tax rate, a 20% down payment and a mortgage interest rate of 4%. The analysis only compared the current cost of renting to the current monthly cost of buying and does not include the benefit of avoiding future rent increases or gaining property appreciation over the ownership period.

It’s a fascinating dynamic and something that we’ve been talking about for a while. Both home prices and rents are climbing in most of this state. It’s always a tough comparison, difficult to control for quality of dwelling and maintenance costs, etc. And of course the big assumptions are that A) you can qualify for a loan and B) that you have 20% for that downpayment. The observation, and this is true around the country, is that if you’re well financed, mortgage money is so ridiculously cheap. And that makes these “affordability” analyses look very favorably at the costs of buying a home.

Full press release here.

Altos Research Rental Intel (sm) market data info here.

 

{ 3 comments }

Steven May 7, 2012 at 11:25 am

It's a fascinating phenomenon occurring in California. With the housing markets slowing beginning to increase, this is good information showing some of the advantages to buying over renting.

Drew June 20, 2012 at 8:26 pm

Although the results are definitely biased depending on one's credit and financial ability, I'm definitely happy to see the results of this study. As more people are saving and building their credit, hopefully we'll continue to see in increase in people buying as opposed to renting!

Van July 28, 2012 at 10:25 am

The result of this study only shows that buying is much better than renting at this time. This also helps people realized that it will cost them a lot more of money when renting than having a home and paying the monthly mortgage.

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