Is It Better to Buy or Rent in Boston?

Aerial view via Shutterstock

The New York Times makes the “easy” part of the decision to buy or rent a home even easier with its new “Is it Better to Buy or Rent?” calculator. It’s similar to other calculators out there, but this one delves a bit deeper into the numbers and does it in a simple, intuitive way.

It asks you for the typical information: What’s the price of the potential home you’re considering buying? What’s your down payment? What will the interest rate be on your home loan? Then, it gives real-life examples as a guide.

But, the calculation isn’t without its limits. Do you know how much it would cost to rent an apartment that’s similar to the home you want to buy? If you don’t live in Boston yet, you might not know what the typical rents are like. Using estimates you read in the press might be far off from reality—often, they quote rents in the new, luxury apartment complexes, which makes up a relatively small amount of the housing stock in the city – it doesn’t have to cost you $3,400 to rent a studio.

You also might not know the interest rate on your loan—the fixed rate right now is about 4.34 percent, but your rate will probably be a bit higher, so you’ll end up paying a bit more per month. And, things such as taxes and condo fees will vary based on which property you actually end up buying.

The questions you just won’t be able to answer with 100 percent accuracy are the ones that might be crucial to your calculations. The number of years you end up staying in one home will undoubtedly be off—you’ll have a baby, or lose your job, or get a job in another city, or get an inheritance, or none of these things will happen and you’ll decide where you live now is where you want to be forever. And, general economy questions such as the growth in rent and home prices and the future rate of inflation are the great unknowns.

In the article accompanying the calculator, NYT blogger Neil Irwin covers the emotional/practical side of the home buying decision process. He asks five really good questions anyone should ask when considering buying versus renting:

• How much is permanence worth to you? Owning a home can give you peace of mind and more control—owners can pretty much do anything legal within the four walls of their homes. Renters are at the mercy of their landlords.
• How confident are you that you will want to stay? Buying a home doesn’t really pay off until several years after you buy since you need to make up for the closing costs you’ve incurred to buy and the investment “loss” you have due to putting your savings into the down payment on your home. Don’t forget you’ll have to pay a broker’s commission when you sell.
• How confident are you about your future income? If you lose your job, renters only have to worry about the remainder of a lease; home-owners could face foreclosure, eviction, and the loss of good credit.
• Can you force yourself to save? If you buy a home today, 30 years from now, your mortgage loan will be paid off and, all things staying constant, have a big chunk of cash available to you if you sell your home. If you decide to rent, you should be putting your savings aside now to make up for this lack of available retirement funds.
• Can you accept that the future is unknowable? Being tied down to a mortgage can be stressful if you like being able to come and go as you please but can also make you feel “settled”—which is probably why people don’t buy until they’re a bit older.

The majority of people who decide to look for a home to buy have already made up their minds without much analysis or thought. They just feel ready to buy, and a calculator won’t do anything but make them feel more comfortable they are making the “right” decision” or make them wary…but they’ll do it anyway.

And, there are plenty of people who can’t use the calculator at all—to buy the median-priced condo in Boston Proper, you’ll need a $100,000 down payment, and even if you look to buy in the suburbs, you’ll need to have savings of up to $50,000. That puts buying out of reach for many.

Every person’s situation is different. The financial cost/benefit of buying versus renting is relatively straight-forward; the emotional/practical side is not.