Streams

Rent or Buy?

Tuesday, May 31, 2011

David Leonhardt, writer of the "Economic Scene" column for the New York Times, talks about renting versus buying a home and how people make that decision.

Compare for yourself the differences between buying and renting a home with this calculator from The New York Times.

Guests:

David Leonhardt

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Comments [24]

james from NYC

its almost impossible to find an apt to buy that makes financial sense in Manhattan in 2012. The only reason to buy in Manhattan is to realize whatever emotional benefits come with ownership. If you are not a multimillionaire then you should look to buy in the outer boroughs where you can still realize the financial AND emotional benefits that come with home ownership. As my Finance Prof. once said: "unless you're a top lawyer, a celeb or an i-banker you should not be living in Manhattan. Living in Manhattan will set you back financially dozens of years."

Nov. 26 2012 05:19 PM
George from Westchester

The single issue of owning, its your own home ! Its NOT ment as a short term investment. Purchase what you can afford. A single family home, a apartment as a condo or coop. The idea of forever paying rent, especialy what most NY City renters are paying
make NO common sence. But purchase what you can afford !!!!

Jun. 01 2011 08:35 AM
Giuseppe from Manhattan

I believe on one count David Leonhardt was not correct: property taxes are deductible from your federal income tax just as mortgage interest, so you do "get back" a fraction thereof corresponding to your marginal rate. Of course this does not apply if you do not itemize deductions.

Jun. 01 2011 12:49 AM
Cathy from Brooklyn

"Plus, the house a) gives you more standing for credit and b) gives you equity against which you can borrow. Anything wrong w/ this logic?"

It was that same logic that got Americans into the financial debt we're in today. Home owning was not meant to be used as a gateway to credit. If people deferred gratification, saved and paid cash then you wouldn't need to borrow any money against your home.

Also, borrowing against your home can be dangerous because if the value of your house decreases you don't want to owe more than your house is worth.

Moreover, understand what the REAL goal of "home equity" credit is - its a way for banks to make even more money.

May. 31 2011 02:46 PM
RBC from FiDi

@dorian - Even with that example you still don't come out ahead at owning. It all depends on a number of factors. And not everyone gets the full deductions when owning... itemized deductions begin to phase out after a certain income level (I think $125K) so again owning isn't for everyone.

May. 31 2011 02:37 PM
Dorian from manhattan

@smithered thanks. I would have thought taxes would be better, because of mortgage deductions. And, yes, time, repairs, etc. are part of it -- but even with that figured in, I would think you could afford to break even or even take a loss and still come out ahead vs. renting.

May. 31 2011 02:16 PM
smithered

dorian --
still need to calculate in:

1. taxes (often higher than actual mortgage)
2. add time/effort cost (could be years) of moving/selling the house
3. repairs
4. depreciation (a reality these days)

May. 31 2011 11:53 AM

If you adjust the rent vs buy calculator in the real estate taxes field to be accurate for our region, then it takes like 23 years to make it better to buy than rent. Of course, the people who can afford to buy in NYC are the ones who don't care about any of this stuff anyway.

May. 31 2011 11:06 AM
jgarbuz from jgarbuz

Buying makes sense IFF (a) you have a secure and assured source of income that will probably not be disrupted, and (b) you are very certain that home prices will increase over time beyond that of other assets. It also helps if you are handy and can take care of many the inevitable maintenance and repair issues yourself.

May. 31 2011 10:51 AM
Maria from Westchester

It's not necessarily smarter to rent when you're old. When my parents got sick and needed in-home care, it was impossible to find an agency that would send someone
for overnights because their apartment was deemed too small.

When they needed to go into nursing facilities Medicaid took every penny they had worked for all those years. A house is the lone protected asset.

If they had owned house instead of renting it is likely at least one of them would have been able to stay in the house and be cared for at home. So after watching what happened to my parents, owning a home is a high priority for me.
Plus how can people willingly live without gardens?

May. 31 2011 10:48 AM
cobblehillmom from brooklyn

I could not buy a space as nice as the one I rent, I wouldn't get the location, the amenities, nor the bedrooms if I had to buy.

May. 31 2011 10:45 AM
Dorian from Manhattan

Let's say you rent for $2,000 per month for 3 years. that's $24,000 x 3 = $72,000.
If you sell after 3 years, even if you take a loss, aren't you still ahead if, after it all, you lose less than that $72,000 - broker's fee and whatever fix up you have to do?

Plus, the house a) gives you more standing for credit and b) gives you equity against which you can borrow. Anything wrong w/ this logic?

May. 31 2011 10:45 AM
Buying Right Now Is Crazy from Park Slope

On paper, my wife and I look like PERFECT buyers -- no debt, high income, two kids, perfect credit scores -- and yet we rent.

And we will continue to rent, at least until prices stabilize. And by "stabilize," I mean GO WAY DOWN!

There are too many downward forces on prices right now -- government supports will go away, real estate taxes are going up, and even in NYC there are not the high incomes any more to keep prices propped up.

May. 31 2011 10:43 AM
Marcia Lane from Riverdale, NY

I bought my one-bedroon co-op in 2001. Sold it at a profit in 2008, and became unemployed last year. I've been living on the profit from the apartment, and renting in Riverdale, which I love. I can't imagine going back to owning!

May. 31 2011 10:43 AM
Alex from NYC

When you have the government manipulating everything to help artificially inflate real estate prices. Then renting is plain dumb.

May. 31 2011 10:42 AM
Buying Right Now Is Crazy from Park Slope

On paper, my wife and I look like PERFECT buyers -- no debt, high income, two kids, perfect credit scores -- and yet we rent.

And we will continue to rent, at least until prices stabilize. And by "stabilize," I mean GO WAY DOWN!

There are too many forces down on prices right now -- government supports will go away, real estate taxes are going up, and even in NYC there are not the high incomes any more to keep prices propped up.

May. 31 2011 10:41 AM
asdf

Effect of Fannie Freddie getting nixed?

May. 31 2011 10:41 AM
Jack

The media does not do too much to help the market. Each time they report a bad news to make a sensation, buyers are sacred away. Then came even worse news. The cycles just keep going down and down...

May. 31 2011 10:41 AM
Only Two Trust Funds

Are you kidding? Manhattan prices are so high only bankers can buy what was constructed as middle class housing.

May. 31 2011 10:36 AM
nico from Crown Heights

Are you kidding me?! The NYT buy vs rent calculator *still* assumes an annual 2% appreciation in home price. These built-in assumptions -- based on historical data when buying/lending standards were totally totally different -- are what got us into this mess!

May. 31 2011 10:34 AM
William from Manhattan

For Manhattan residents, renting may be a better choice than owning if you are paying for college. We own, and get virtually no financial aid, while a friend with a rent-controlled apartment gets a lot of financial aid. Other than our housing situation, other variables are about the same, including same out-of-state private university. I think it's because financial aid is determined by assets, not expenses.

May. 31 2011 10:31 AM
whoindatgarden from Brooklyn

When the bankers. home owners and people who are investors accept that even when the economy fully recovers housing prices should not go back to what they were say 6 years ago. When the greedy realize that inflated adjusted if prices are where they were in 1980's we would be in a better place, the longer it takes the worse of it will be.
Until then all these numbers about price drops will be just sustained going downwards slowly to the level they were 1980's.
Get real people.

May. 31 2011 10:30 AM
superf88

In the future I assume hedge/private equity funds will buy much of the US primary residence housing stock (with Chinese sovereign wealth funds subsequently snapping up those firms), as investments. No brainer.

The first thing they will do is figure out how to get RENTERS to pay the property taxes that OWNERS are currently responsible for paying. That will be their profit.

In many places taxes are higher than mortgages. With nothing changing it is unwise not to rent. I'm just surprised that there aren't more decent rental properties yet.

May. 31 2011 10:30 AM
RLewis from the bowery

My savings is to a point where I could buy, but every place I look at has a monthly condo/coop fee that is higher than my current rent. Why would I take on a mortgage on top of that? It doesn't seem to make financial sense.

May. 31 2011 10:28 AM

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