Let them rent homes

That doesn't sound too crazy to me in general. There are the old arguments for ownership, such as the effect pride of ownership can have on a neighborhood, and of course, the big one, jurisdiction over your own property. The 2nd point is very intangible though and at the lower end of the market it may not be worth it. But this jurisdiction benefit applies even to people with negative equity--they still don't have to report to a landlord.

Does this reflect reality, though? If I were to go out and try to rent/buy a place would those be the prices I found? The numbers feel really off to me. I own a condo; the identical next door unit rents for about $600 more a month than my mortgage.

The calculation holds true for more than the low end of the market. Your own parent newspaper site, the New York Times, had a lovely interactive calculator showing the payback period for owning over renting. At current Boston median prices, the result is clear: Don't buy.

And it's not necessary to compare the opportunity costs of stock market investing in the calculation, either. A money market will do.

If you are lucky, you might find a 1 bedroom apartment in Boston or within Route 128 for less than $1,084. It will probably be in an unsafe neighborhood in Chelsea or Dorchester. It will not be a place you want to raise kids.

This whole article is bogus. According to the article mentioned, the fair market in the Boston-Cambridge-Quincy HMFA is $1,353 not $1084 as mentioned.

http://www.nlihc.org/oor/oor2008/data.cfm?getmsa=on&msa=777&state=MA

This line of thinking is right on. One thing I haven't heard mentioned are property taxes and condo fees, neither of which a renter is responsible for. I pay $3500. per month for the mortgage on my condo. Condo fees are $700. per month, property taxes come out to about $300. per month. People in my building rent identical units to mine for $3000. per month, or $1500. lower on a monthly basis than my costs. It's been cheaper to rent for years in Boston. I rented for years and saved a ton of cash. Where is the "shame" in renting?

In Boston, the fair market rent for a home is $1084???!!! PLEASE tell me where I can rent a home...or even a 2 BR apartment....for anywhere near that amount. I'm paying $1400 for a 1 BR.

The correct fair-market rent figure is $1,353 for the Boston area. Thanks to those who pointed out the mistake. It's been fixed in the entry

If anyone feels like telling me where you can get something "decent and safe" for $1100 a month (without parking, I'm sure) I would sell my condo right now and move in. That being said, if the owner only wanted $1100 a month I would offer to buy it from him or her so I could control my own renovations and improvements and not deal with the uncertainty of being chained to someone else's life events.

Was the income tax benefit figured in the calcs? Also, assuming no appreciation is not a historical reality in general.
Owning more than one can afford certainly does not beat renting.
It is not the governments job to bail out the folks anyway.

"Fair Market" doesn't exist in this city- its just like Manhattan- everything is bumped up to a premium because people can GET AWAY WITH IT. If you aren't looking to move in the near future and to settle down- now is the time to buy- you can drive a hard bargain if you are a qualified buyer and just think- NO MORE LANDLORDS (but God help you if you move into a condo- the assoc. takes the landlord's place). No more asking to paint, or asking if you can bring you dog, you are improving your credit worthiness and eventually when the market rebounds, equity.

Otherwise- go ahead, rent: pay someone else's mortgage, ask permission to do what you'd like, be beholden to their and realtors' whims for yearly price/rate.

In response to this comment:

"I own a condo; the identical next door unit rents for about $600 more a month than my mortgage"

I suspect that you probably bought your condo pre-2004. The after tax cost of renting now is less than owning.

Because of the facts that renting is much cheaper than buying, and home values are falling, underwater debtors who walk away from their mortgages and rent will be better off than if they struggle to pay inflated mortgages -- their cost of living will decrease substantially, they will walk away from bad debt, and they be able to buy again in a few years when home prices are cheaper. Under current conditions, ownership is an anchor around underwater debt.

So these government bailouts are not about helping the foreclosed "victims" who can simply walk away from their debt and rent more cheaply, but the banks that made all those bad loans and are now insolvent.

For the high end of the market, it costs about 40-50 percent more to buy than to rent. This is easy to verify using craigslist and local rental listings. I had commented before on a $2+ million dollar home on my street that went into foreclosure. Comparable rental properties are listed for about 60 percent cheaper than the selling price of this foreclosure. The buyers are paying several thousand dollars a month extra for the privilege of owning a depreciating asset.

So much for "throwing away money on rent."

The government bailouts will only hurt the value of the dollar and are an ultimately futile attempt to prop up an imbalanced market and insolvent banks that made too many bad loans.

I wish the Globe would include the cost-benefit analysis of the government bailout programs to people in foreclosure who have their debt erased and can live more cheaply in a rental, versus the banks, who benefit from the continuing debt servitude of those who don't walk away from their bad debts.

How much of the house payment is principal? What ever the amount is should be considered (forced) savings as this increases the homeowners equity by the same amount each and every month. In addition the interest and taxes can be written off against income taxes. It seems like this study was done by another incompetent government agency.

"One thing I haven't heard mentioned are property taxes and condo fees, neither of which a renter is responsible for."

I'm sure that rents accounts for property taxes and condo fees. Or the landlord should be out of business.

Much depends on how long you plan to live in the unit, the structure of your mortgage and your income level. Those in a high income bracket who plan to live in the unit for several years might do quite well once the deduction for taxes and interest are factored into the monthly price of ownership. GG #5 is probably getting $1200/month back when he files his taxes if he is in the 38% tax bracket bringing his total cost per month to a similar amount of the renter (and he is also building some equity). If you plan on staying for more than 5 years, why give away your rent $$ to a landlord? The problem with renting is that your rent keeps going up, while a fixed interest mortgage payment will remain level.

Don't forget that if you own a home with a fixed interest rate your monthly payment is generally going to stay the same for the next 30 years (taxes, insurance and utilities will continue to rise). Rent goes up year to year. I rent out a 2 and 4 family in Boston. I love making money off of people who want to pay rent.

Amen GB! C'mon people! "The group argues there is little long-term benefit to ownership because prices in cities including Boston likely will continue to decline." What an amazingly crazy statement! Over what period of time will they "likely" continue to decline? 6 months? 1 year? 2 years? What happens when they stop declining? Oh gee - they start going back up again! The old rule that says rent unless you plan to live in the house for at least 5 years still applies. The real estate market just went through one of the longest periods of appreciation in US history fueled by Greenspan's easy money policy. All good things must come to an end. It is now going through a period of adjustment. I suspect the authors of this study developed "irrationally exhuberant" expectations about the future of real estate appreciation during the boom and are now developing an irrationally pessimistic view in light of the real estate bust. Or perhaps there's a large contingent of slumlords running the National Low Income Housing Association. Buying a home always has and always will have significant benefits over renting.

OK, I need to ask if the link wrong. The report in the link doesn't talk about home ownership at all as far as I can see. The report discusses the wage that you must earn to afford a median rent when working 40hrs a week and the number of hours that the median renter must work to afford the median rent. Neither picture is pretty. However ownership isn't part of the discussion. IMHO there is sloppy reporting going on here.

Finally someone gets it! Even before the current housing market woes, renting has been the best deal in town. What we pay for our well-kept 2 BR apartment in a nice safe metro neighborhood is right on with the fair market rate. Meanwhile the owners of the condo conversions on our street pay mortgages that are triple our rent for the privilege of owning what is essentially the same apartment. And that's before taxes and condo fees!

Pre-1994 the pro-buying conventional wisdom may have worked in Boston - and it might still work in less expensive parts of the country - but currently there is no comparision. Check out some of the Globe's calculators if you don't believe it. Even if rent goes up every year the amount is a drop in the bucket compared to the higher costs of a mortgage. The price differential between renting and buying is too great.

No property taxes, no condo fees, no maintenance costs, no unexpected repair costs. Sure, no equity and no (federal) tax advantage, but no debt either...

(Btw, this isn't bragging. It took a huge mental shift to give up the traditional American dream. But for some of us it is financially more sensible to rent. And my renter's envy disappeared the day a homeowning friend said, "Hey, I have a landlord, too. Down at the bank".)

fixed mortgage, being able to itemize, no landlord. practically priceless.

Actually this is right on. I rent a great 2 bedroom / 1.5 bath apt in Charlestown for under $2000 a month which could never pay a decent mortgage payment. My apt would easily sell for $500k as a condo...

Yep. It's why I sold and now rent, as I've posted before.

My nice apartment in back bay, with doorman and parking, costs me a fraction of what the same apartment would cost to own.

So why own currently? I'll keep renting until owning makes sense again.

One thing no one ever mentions is that if you have the money, the *process* of buying is significantly easier then renting. When you want to buy, you have access to all sorts of wonderful information centralized in the MLS database. When you want to rent, you have to deal with a zillion teaser listings and a bunch of rental agents who show you the crappiest apartment they have in the hope they can wear you down and get you to take it, plus it makes the next crappy apartment look a bit better. It takes FOREVER to find a good place to rent due to all these inefficiencies in the market. Due to an expanding family, we just sold our way too small condo for a tidy profit. We wanted to rent to try out a different community and we ended up in a decent place, but the process was brutal and almost drove me to buy a place that really wasn't quite right for us.

To #23, great point. As crazy and complicated as home-buying can be, they reach up far or even farther when you rent. It make sense. To the landlord, you may be their one and only big investment--a bank can hedge their bets with thousands of investments. The renting process is even more of a pain.
And to #19, they do have a landlord in a sense, but a landlord that lets them do absolutely anything they want without asking as long as they pay the bill. That is not the same. Financially though, the argument in the article is still sound, even with the price adjustment. But if its right for you, you can move further out and get your jurisdiction and investment buying for the same price as renting closer to the city. Of course, I would live in a barely functional trailer on my own land before I'd live in a nice apartment or even condo because I am stubborn, and not everyone would make that choice, understandably!

I got tired of paying $2k month in rent and just recently decided to buy. With just 5% down, I bought a great loft/condo in Seaport and my payment is cheaper than what I was paying in rent (this includes condo fee, insurance and taxes). Not only that, I am not even factoring in the tax deduction on an annual basis. I think this article is incorrect in the sense that it doesn't look at the "big picture." You can't find a "nice" 1 br in the city of Boston for less than $1500/month. I know, I looked for over a year!!!!

AHG wrote: One thing no one ever mentions is that if you have the money, the *process* of buying is significantly easier then renting

Huh?

Getting approved for a loan, getting inspections done to make sure the realtor/seller isn't lying to you about the foundation, figuring out tax and utility so you don't buy too much house, bidding on the home against people who may or may not exist, hashing out the mortgage agreement, figuring out the closing process, figuring out what the heck "points" are and why the lawyers want you to buy them, etc...

And then, once you actually move into the house, the laundry list of things you need to buy/fix/upgrade particularly if you're a first time buyer (what do you mean I need a snow shovel?)

Unless by "if you have the money" you mean "if you can pay cash for the house," which is a condition that probably affects half a percent of the market.

But yeah. Buying is much easier than renting. Because with renting, once you've found the place, you undergo a background check, pay your deposit, sign the renter's agreement and move in. And who wants to go to all that trouble?

I rent for $1,100/mo in Waltham. Its a very nice 4 unit Owner Occupied Victorian. Heat is included.... My Fiance and I looked into buying a 3 bd 2 bath cape outside of 128 but inside 495 and it was $370k.... the monthly payment was $2,715/month (with a 30 yr 5.75%).... that included the mortgage, the taxes, PMI and insurance... add on another 600 for heat and cable and electricity... we would be talking $3,300 a month.... 1,100/rent or 3,300/own.... we will continue to rent untill the numbers come closer together....

Keep renting also you have total flexibility where you can move to get a better job and wait for the right house to come your way.

I found a fun, interactive NY Times calculator--not the one I originally had in mind--with data from Moody's.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=slogin

There are many, many such calculators on the Web, and some are a lot more elaborate than this one.

And yes--the benefits of renting are clear even after you consider the tax deductions, fixed payments, and all the other issues posters here imagine they were the first persons in the world to discover.

Of course it's far cheaper to rent the same house than to buy it in Boston.

A mortgage really is throwing your money away.

"When you want to rent, you have to deal with a zillion teaser listings and a bunch of rental agents who show you the crappiest apartment they have in the hope they can wear you down and get you to take it, plus it makes the next crappy apartment look a bit better."...

I have lived this too many times to count, not dealing with the stress of realtors, management firms, and landlords pays for itself. Have you done a craigslist search recently? Teaser after teaser- its nothing more than spam (and the worst kind too). All the "luxury communities" just outside town that offer all those amenities (for a hefty markup)? They advertise with first month free, but never tell you about the hidden fees, the "pet friendly" places are the worst- they have that market cornered- its extortion, plain and simple. Its despicable and purely a product of an over-inflated, over hyped market like Boston or San Fran.

Then, the rental realtors get in on the act. They have a method, like anyone else in any other trade- and they think they can get you into the apartment THEY want to put you in, not the one you want to be in. It may not necessarily be hard if you are relatively well off and don't have any special needs or requirements- but the second you say "I have a dog", "I'm on a budget", "where can I park?" or anything like that- you've got a nice big bullseye painted on you and they got you by the cajones.

If you absolutely must live in Boston- you're going to have to make lots of sacrifices. The same could be said if you even want to live within 128. I agree- if you are staying put, just buy. Look out near the borough's near Worcester, look down in the Attleboro/Mansfield area, or right outside Lowell. Everywhere else you'll be paying a premium- and by premium, I mean "they" are milking you for all you are worth.

I think this is very situational and based on individual circumstances.
I own a one bedroom condo in Charlestown - no parking, no outdoor space, but completely updated and renovated. Very small, but safe. My principal and interest payment on my mortgage, with my taxes and condo fee, is about $1400 a month.
I would bet that I would be hard pressed to find a comparable rental for that price point per month in Boston. Weighing all the factors, I think it made the most sense for me to buy and not rent. I bought during the down market, and at least I have some hope of appreciation, and tax benefits. However, I had to put 30% down on my mortgage to get to that monthly amount. I think it depends on interest rates, down payment amount, etc.

#29 I agree... The Boroughs are prolly the best value in the state... Westboro, Northboro and Southboro are the towns at the Mass Pike/495/Rt 9/290 area... great for commuting but the best part is they are all within the Top 10% of MCAS scores.... and have populations betwene 10k-18k in the 3 towns.

You cannot find a nice place to rent for cheap or buy for cheap near Boston. Im not sure why you guys cannot agree on that. No matter how you arrange it, its just expensive. Regional incomes are higher to adjust for that.

I bought for a variety of reasons - but one of the most important is that I fully plan to retire no later than age 60. Who knows how long I'll live? I'd hate to be retired and wasting my fixed income on a mortgage . . or even worse, rent! So yes, there are the tax deductions, the ability to do what I want to my place without asking permission, have pets, etc. -- but piece of mind knowing that I have a home for as long as I need it is the best.

Regional incomes are higher to adjust for that.

No. They. Are. Not.

At the peak of the bubble, there were virtually no towns in Mass. where the median income could buy the median house. The bubble exploded the income-to-price ratio.

Bottom Line you need a 2 Income household to buy a property... So yes if the Median income per person is 50k then its 100k they coould afford a 350k house if they really stretch it... ideally 275-310 would be where they should buy.... Good luck finding a house for $300k East of Worcester.....

Rent vs. Buy is relative to income of the household, length of time one plan to stay at the same location and many other factors. We got into this housing market bubble because everyone started listening to their realtors, mortgage brokers , newspapers and friends instead of doing their own due deligence to figure out what best fit their need. Pull out a spreadsheet and analyze your income vs expenses. Consider all the down falls and unexpected events that comes with home ownership and accumulate enough to cover those in a rainy day fund. For a high income household who doesn't plan to move around, there are huge tax savings in owning a home. For people who are barely meeting their monthly expenses and have little or no savings, they shouldn't be purchasing a home in the first place. There is no shame in renting, all it matter is your bottom line.

"Regional incomes are higher to adjust for that."

Sorry, that's just not true... the average is brought up by the positions that bring in LOTS of dough each year. The rest of us earn in the neighborhood of what our counterparts in other states earn. A young couple pulling in 70-80K a year here together, renting, paying student loans, and just getting by could relocate to Philadelphia, North Carolina, Baltimore-Washington, or even Atlanta or Florida- bring in the same amount and enjoy a MUCH higher standard of living.

Face it, you need to be rich in and around Boston to really enjoy it without serious worries...

The rent:: price ratio is historically correct in establishing the value of a property. If the amount for which it will rent does not cover at least the mortgage, taxes and insurance - it is over priced.

(And investors want to see the mortgage, taxes and insurance to be not more than 60-80% of the rental income as they need some for maintenance and profit.)

I totally agree with 37 having just relocated to Ohio from Boston. To all those buyers who think that lower monthly payments are a good thing, watch out. What you pay each month is irrelevant if the value of your investment is declining at a rate that far exceeds your payments. I don't think you can fully appreciate the results of lost equity until you are bringing $40,000 to your closing and are happy to do so because the person who just bought your home is probably already upsidedown. It's about more than the monthly payments. Equity loss is real. Apply for a HELOC and find out how much you really have in equity. It will be an eyeopener. Despite what out parents told us, home prices do not always go up.

I'll amend my prior statement that the *process* of buying is easier than renting to say the *process of finding a viable listing* is way easier when buying vs. renting. It's true that once you have found a place there are a zillion things to do to close a sale, but try finding a place in Boston to rent when you have two small children - lead laws and associated discrimination is a big enough problem that I almost broke down and bought another place - which will probably will in another year or so, but we haven't yet found a place where we want to live for the next 10 years.

I saw many people claiming they paid less owning than renting?

However, when did you buy? 5 years ago? 10 years ago? Then what's the amount of rental at that time? To make the two number comparable, they must happen at the same time.

It is better using the current rental to compare with the cost of buying similar property at current price/mortgage rate. Also, count on all the cost of owning like utility, potential maintenances cost, potential tax cost, potential marginal cost of down payment, any other cost(like closing cost, attorney fee). Then deduce the tax benefit(both buyers and renters) and minus the equity accumulated .

I do think at current time it is better to rent than buy for a while. May be one or two years until the market stop declining.

Lots of people make under $35,000 a year like hospital workers, customer service people, retail clerks, human services staff etc, A one bedroom for $ 1100 per mo would cost one of these low wage working people up to 3/4 of their monthly net pay
We might work a second job or have become so used to scraping to get by after paying the landlord that it has become normal to us, just a fact of life that we all accept. We eat beans and rice when the rent is due.or run ourselves ragged working all the time. $1000 a month or more for a one bedroomis a lot of money to come up with evey month when you are making $12.00 an hour or less. Buying is too expensive but renting is not much better. Boston is unaffordable whether renting or buying.