Morici: Why Owning a Home Still Beats Renting
NEW YORK (TheStreet) -- Whether to rent or buy a home is one of the toughest choices young people face these days.
A recent Deutsche Bank study compared renting vs. the cost of owning a home in 54 cities. It estimated the monthly payment on an average house, factoring in property taxes, homeowners insurance and the tax break for mortgage-interest deductions. It concluded that in 20 metro areas -- including some quite attractive locales such as Orange County in California and suburban Long Island in New York -- it's cheaper to rent than buy.
If folks need to move to another city for a new job or to be with a new spouse, realtor's fees and other transactions costs can wipe out the savings many people realize from owning a home if they live in it for less than five years.
Still, for many, that math is irrelevant.Most people don't move between cities once they settle into an occupation. Teachers, accountants and most other professionals operate within regional job markets, especially where state licenses apply. Most can stay put if they like and know whether they will want to move to another city anytime soon. Also, the investment climate has changed dramatically during the last 15 years, indicating that homes are a better investment than stocks. Many people are scared, because homes have recovered only about 40% of the total value they lost during the financial crisis, while stocks have set record highs. That is a very short-term view. In this century, U.S. economic growth has slowed to 1.7%, or about half the pace set during the prior 20 years. Consequently, the S&P 500, which tracks 80% of publicly traded U.S. equities, is up only 23%, while the S&P index of home prices for the 20 largest metro areas is up more than 60%.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts