Housing Cost

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 in another.

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 to $500.

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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