Buy A Home Now Or Keep Renting?

HOEQ: My wife and I are enjoying city life and the flexibility of being renters. But everyone says we?re crazy for not buying a home. Is renting really such a bad financial move?

A: You?re certainly not crazy for enjoying the food, culture, and lifestyle that come with living in a great American city. But your real question seems to be whether it?s better to buy a home ? even a downtown condo or co-op apartment, rather than a single-family property ? or keep renting.

By waiting, of course, you?re missing out on the mortgage tax deduction. Often called the last middle-class tax break, this allows homeowners to write off the mortgage interest they pay on their primary home. If you were to buy a home at the national median price (now about $229,000) with the standard 20% down payment and a 4% fixed mortgage rate, you could get a roughly $7,269 write-off in Year 1 ? and end up paying $1,817 less that year in taxes, assuming a 25% effective tax rate. For the median price home in San Francisco ? a whopping $1 million ? your first-year savings could be more like $7,935, given the same set of assumptions.

So for the simplest comparison, you would subtract that tax savings from your annual mortgage payments and weigh that against the cost of your rental.

But there are other factors to consider. Home maintenance costs are one issue; they might move the needle closer to the rental side. Assuming that you do plan to buy eventually, however, a stronger argument to make a move now has to do with mortgage interest rates, which are near historic lows ? just over 4% as of this writing ? and home prices, which while up from the depths of the Great Recession, are expected to rise in the next few years.

Waiting just a year to buy would mean an estimated loss of $18,672 in missed monetary gain and other financial benefits, according to an analysis published in May by chief economist Jonathan Smoke. Waiting three years would cost $54,879, according to Smoke?s Opportunity Cost Report.

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