By Steve Gillman - December 1, 2011
What is the average housing cost where you live? That depends
on where you are, of course, but also on whether you rent or
are buying a house. In recent years the cost of rent has climbed
in some areas even as home prices have fallen. In other words
it is getting more expensive to rent while becoming cheaper to
own, and this is especially true because of low interest rates.
Let's look at rent figures first. The US census figures are
a couple years old, but they do show the relative housing cost
for renters. You can see, for example, that Hawaii, with a median
gross rent of $1,293 is the most expensive state, while North
and South Dakota, with average rent of $564 and $562 respectively,
are cheap. Of course the median gross rent figure doesn't tell
the whole story. There are figure for different rent ranges too.
We see, for example, that even though Alaska has fairly high
rent in general, 10% of renters manage to find places that go
for under $500 per month. There is nothing in the numbers about
the kinds of place you have to live in for that rate, but apparently
cheap rent is available. About 24% are under that $500/month
mark in Alabama, and their heating bills are undoubtedly much
less. That brings us to the other elements of housing cost.
Total housing cost, if you want to compare places fairly,
has to include the cost of electricity, heating, and anything
else that is related to living in a specific house or apartment.
I would include transportation costs to get to work and shopping,
since you might be within walking distance to your job from one
apartment, and spend $80 monthly on your car expenses to go to
work from another. Look carefully to determine all costs. You
might pay $30 per month for your cat in one place, and nothing
Now, to compare housing costs of buying versus renting, be
sure that you not only include the regular expenditures like
mortgage payment, taxes, insurance and utilities, but also the
irregular ones. For example, you will have repairs that come
unexpectedly when you own a home. Figure that even a small house
will need $100 monthly over the long run, even if that means
nothing this year and a $2,400 roof repair next year.
At the moment there are many places where buying will make
more sense than renting. The home I am sitting in as I write
this would rent for $950 per month, which, with gas and electric
averaging $150/month, makes for a total monthly cost of around
$1,100. To buy it with 10% down the payment would only be about
$560. Taxes, which are very low here, add about $50 per month,
and insurance another $30. Water is normally paid by landlords
in this area, so add that $20 monthly charge, and another $100
per month for repairs and maintenance (of which almost nothing
is needed at the moment, but just in case), $150 for the utilities,
and we have a total housing cost of $910. That's almost $200
less every month.
At the moment some of the best deals from a housing cost perspective
include houses in overbuilt areas like Athens, Georgia (almost-new
three bedroom houses are well under $100,000) and parts of Florida.
Condos are especially cheap in many parts, starting at around
$25,000 in Reno, Nevada, for example, and almost that cheap in
many parts of Florida. With condos though, be sure to consider
the association dues, which can be as low as $125 monthly up
There are other factors to consider about housing cost when
looking at buying versus renting. One is that you'll likely lose
everything you save from buying if you have to sell in the next
few years. You'll spend around 10% of the purchase price on transaction
costs of buying and selling (real estate agent fee, closing costs,
taxes), so even if prices level off soon and even if they rise
a little, you are likely to lose money unless you hold the home
for five years.
On the other hand, your housing cost for a home that you own
is less subject to major increases. Taxes could rise a little,
as could insurance and utilities. But if you get a thirty-year
mortgage loan with a fixed rate, that biggest cost will not change.
meanwhile, if the area grows, rents could rise substantially
over the years. That gives the edge to buying if you plan to
stick around a while and want to keep your costs low.
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