The New and very old math of renting versus buying a home by Ben Steverman read by Mara Finnerty. For Americans approaching middle age, home ownership used to be the default assumption, stop throwing your money away. Personal finance gurus would tell renters, if you're planning to stay somewhere for five years, when the standard rule of thumb, you should buy. Some continue to spout this advice, But if you've spent any time recently looking at listings and doing the math, you know how outmoded it can be. For my situation as a resident of an expensive coastal city, the online rent versus by calculators are practically unanimous. With prices at records and mortgage rates bouncing near seven percent, Buying right now makes no sense. Many others find themselves in the same situation. The median age of first time home buyers was a record thirty eight last year, according to the National Association of Realtors, five years older than in twenty twenty one, and they make up a shrinking share of the market. As recently as twenty ten, half of yours were purchasing their first home. Last year, just twenty four percent were still I must admit to something bugging me each month as I send rent to my landlord. Part of it is regret friends and siblings bought years ago, in time to lock in low rates and benefit from a near doubling of us home values in the past decade. They rode the escalator. I seem to be taking the stairs. But it's more than fomo. It's the little voice louder as I get older, saying you're not a serious person unless you own your own home. I think of my grandparents on my father's side, Boston City kids who race six children in the suburbs, then retired on a pension to a split level, three bedroom half a mile from Cape Cod Bay. My mother's parents, the daughter of a Cleveland butcher and a son of rural Pennsylvania poverty, collecting friends, family and junk in an ancient farmhouse outside the college town, where she taught preschool and he coached football. The American dream, in other words, that tired cliche that even high rates and five hundred thousand dollars starter homes can't quite kill the urge to own runs deep. The challenge for the potential first time buyer in the twenty twenties is to figure out how much of the impulse is timeless wisdom and how much is a nostalgic inheritance from another era. A good place to start is with numbers. Unfortunately, home buying is the most complex financial decision most individuals will ever make. Comprehensive rent by calculators include more than a dozen variables. It's not just interest rates, rent levels, home prices, taxes, insurance and closing costs, but stuff about the future no one can possibly know. A key factor is how your savings would do in the stock market or other investments rather than locked up in a down payment. What can make home buying especially lucrative and treacherous is the leverage that comes with a mortgage. Put one hundred thousand dollars on a five hundred thousand dollars home and a twenty percent price drop wipes out your entire down payment. A twenty percent value increase, however, doubles your money. Thus my FOMO in watching the SNP core Logic case Shiller US National Home Price Index sore fifty two percent in five years. There's no guarantee I would have gotten this return, of course, but I also would have been building equity along the way. This is why financial advisors often still will tell people to buy. Mortgage payments force you to save very often, though home ownership forces you to spend. You never know when the need for a new furnace, roof, or special assessment might be dropped in your lap, or especially lately, how your insurance costs might rise, or when a natural disaster might rage through your area. Maintenance costs aren't just impossible to predict, there nearly is difficult to track properly. One of the privileges of home ownership is getting to paint the walls, redo the kitchen, and buy exactly the right furniture for the space, knowing you won't need to move it all in a year. But only some of these improvements will add to the value of your home. You buy a hot tub because you want somewhere to relax in the evening, not because it's a good investment. The rent by calculus used to be a lot easier thanks to the federal government. A keeper work was the ability to deduct mortgage interest on taxes. It's still on the books, though the twenty seventeen tax law made it irrelevant for most homeowners. By almost doubling the alternative standard deduction and limiting deductible interest to seven hundred and fifty thousand dollars of debt. The deduction was also much more valuable in an era when top earners paid ninety one percent marginal rates versus thirty seven percent today. A nineteen fifty seven BusinessWeek article did the math for its affluent readers. If you put twenty five thousand dollars down on a fifty thousand dollars home, your annual costs work out to four thousand dollars, of which one thousand, six hundred dollars is deductible. For a man in the fifty percent tax bracket, this means the savings of eight hundred dollars a year, bringing out of pocket cost to three thousand, two hundred dollars compared to about six thousand dollars annually to rent a similar home. Even more valuable to home buyers were the massive government subsidies directly and indirectly fueling the growth of the suburbs. Housing policy did more than boost the home ownership rate by favoring white buyers, it heightened the nation's racial divides and held back black families from building generational wealth. The government also determined what got built sees of single family homes with few apartments, and imposed mortgage rules giving married couples preferential treatment. The result was an unprecedented urban rural sorting of the population by family type, with lasting consequences. In conservative and conformist suburbs, most residents would rarely encounter adults living outside of marriage or publicly deviating from heterosexual norms. Historian Clayton Howard has written while left behind in cities were high concentrations of single people and others. Conventional families who played a crucial role in the sexual revolution of the nineteen sixties. When we assume parents with children are supposed to buy a single family home in the suburbs, were largely inheriting that attitude from this era. Another enduring idea about home ownership comes from the nineteen seventies, when Baby Boomers were coming of age. It's the idea that you need to buy before it's too late. Amid persistent inflation, real estate was one of the only assets that could keep up and even exceed rising price levels, despite mortgages at ten percent. In nineteen seventy four, BusinessWeek told its readers, there's little point in waiting for interest rates to slide while the cost of land, labor, taxes, and materials keeps soaring. Boomers now sit on trillions of dollars of home equity, but making money in real estate was hardly automatic for them. Business Weeks still saw euphoria in the housing sector in nineteen eighty four, but six years later it was quoting a Denver house painter declaring the boom days are over. A year earlier, the magazine relayed the complaint of a would be buyer that sounds familiar today, with the exception of the price level, a seventy seven thousand dollars starter home was out of reach, and Atlanta bank manager told Business Week, unless your grandmother dies and leaves you fifty thousand dollars. Adjusting for inflation, home prices barely rose in the nineteen nineties and then accelerated at the turn of the century in the run up to the subprime financial crisis. I watched the boom, the bust, and then the subsequent boom all from the sidelines. Maybe if I'd jumped into home ownership at some point, I'd be a lot richer now, But my timing could also have gone horribly wrong. I found some reassurance for my refusal to jump on this roller coaster ride in an October report from the conc Rational Budget Office looking at US families wealth from nineteen eighty nine to twenty twenty two. The CBO found their home equity had more than tripled, but their retirement wealth and other financial assets had more than quadrupled. Housing is still an important component of wealth, particularly for poorer people who don't have other assets, but overall it makes up just eighteen percent of Americans non social security net worth. A home may be an owner's biggest single investment, in other words, but is not usually the main driver of wealth. Other assumptions left over from the twentieth century have been undermined by economic and demographic trends, as Americans marry by homes and have children later and later in life compared to a generation ago. Suburbs are more diverse, cities are significantly safer, and both are less affordable, particularly places that fail to build enough homes. One way to revive a flagging conversation with friends I've learned these last few weeks is to ask them about their rent versus buy decisions. Everyone has an impassioned opinion, but I've noticed few people spend much time dwelling on the financial aspects of buying or renting. Some find psychological solace in having a permanent home. Others find peace in the flexibility of renting. Some love the week end trips to home depot or are eager to follow Martha Stewart's advice. If you want to be happy for a year, get married. If you want to be happy for a decade, get a dog. If you want to be happy for the rest of your life, make a garden. Others are content to leave maintenance to their landlord and gardening to the parks Department, while spending time and money on concerts or travel. In nineteen forty eight, Carrie Grant starred in a movie Mister Blandings Builds His Dream House, later remade as The Money Pit with Tom Hanks in the nineteen eighties and again as Are We Done Yet with Ice Cube in two thousand and seven. The original is an encapsulation of post war America's obsession with housing. Grant's character, Jim Blandings, decides to move his family from their cramped New York City apartment to an eighteenth century farmhouse on the verge of collapse an hour from the city. Disasters ensue, all played for laughs. Blanding's best friend and lawyer keeps warning him how much it's all costing, until a final scene when he concludes it doesn't matter. Maybe there are some things you should buy with your heart and not your head, he advises Blandings. Maybe those are the things that really count. In the context of nineteen forty eight, it's an argument for splurging on a suburban castle. But in twenty twenty five, I take the opposite lesson, at least for now. Don't buy solely for financial reasons, and certainly not because someone else thinks you should buy a home because your heart is in it.

The New and very old math of renting versus buying a home by Ben Steverman read by Mara Finnerty. For Americans approaching middle age, home ownership used to be the default assumption, stop throwing your money away. Personal finance gurus would tell renters, if you're planning to stay somewhere for five years, when the standard rule of thumb, you should buy. Some continue to spout this advice, But if you've spent any time recently looking at listings and doing the math, you know how outmoded it can be. For my situation as a resident of an expensive coastal city, the online rent versus by calculators are practically unanimous. With prices at records and mortgage rates bouncing near seven percent, Buying right now makes no sense. Many others find themselves in the same situation. The median age of first time home buyers was a record thirty eight last year, according to the National Association of Realtors, five years older than in twenty twenty one, and they make up a shrinking share of the market. As recently as twenty ten, half of yours were purchasing their first home. Last year, just twenty four percent were still I must admit to something bugging me each month as I send rent to my landlord. Part of it is regret friends and siblings bought years ago, in time to lock in low rates and benefit from a near doubling of us home values in the past decade. They rode the escalator. I seem to be taking the stairs. But it's more than fomo. It's the little voice louder as I get older, saying you're not a serious person unless you own your own home. I think of my grandparents on my father's side, Boston City kids who race six children in the suburbs, then retired on a pension to a split level, three bedroom half a mile from Cape Cod Bay. My mother's parents, the daughter of a Cleveland butcher and a son of rural Pennsylvania poverty, collecting friends, family and junk in an ancient farmhouse outside the college town, where she taught preschool and he coached football. The American dream, in other words, that tired cliche that even high rates and five hundred thousand dollars starter homes can't quite kill the urge to own runs deep. The challenge for the potential first time buyer in the twenty twenties is to figure out how much of the impulse is timeless wisdom and how much is a nostalgic inheritance from another era. A good place to start is with numbers. Unfortunately, home buying is the most complex financial decision most individuals will ever make. Comprehensive rent by calculators include more than a dozen variables. It's not just interest rates, rent levels, home prices, taxes, insurance and closing costs, but stuff about the future no one can possibly know. A key factor is how your savings would do in the stock market or other investments rather than locked up in a down payment. What can make home buying especially lucrative and treacherous is the leverage that comes with a mortgage. Put one hundred thousand dollars on a five hundred thousand dollars home and a twenty percent price drop wipes out your entire down payment. A twenty percent value increase, however, doubles your money. Thus my FOMO in watching the SNP core Logic case Shiller US National Home Price Index sore fifty two percent in five years. There's no guarantee I would have gotten this return, of course, but I also would have been building equity along the way. This is why financial advisors often still will tell people to buy. Mortgage payments force you to save very often, though home ownership forces you to spend. You never know when the need for a new furnace, roof, or special assessment might be dropped in your lap, or especially lately, how your insurance costs might rise, or when a natural disaster might rage through your area. Maintenance costs aren't just impossible to predict, there nearly is difficult to track properly. One of the privileges of home ownership is getting to paint the walls, redo the kitchen, and buy exactly the right furniture for the space, knowing you won't need to move it all in a year. But only some of these improvements will add to the value of your home. You buy a hot tub because you want somewhere to relax in the evening, not because it's a good investment. The rent by calculus used to be a lot easier thanks to the federal government. A keeper work was the ability to deduct mortgage interest on taxes. It's still on the books, though the twenty seventeen tax law made it irrelevant for most homeowners. By almost doubling the alternative standard deduction and limiting deductible interest to seven hundred and fifty thousand dollars of debt. The deduction was also much more valuable in an era when top earners paid ninety one percent marginal rates versus thirty seven percent today. A nineteen fifty seven BusinessWeek article did the math for its affluent readers. If you put twenty five thousand dollars down on a fifty thousand dollars home, your annual costs work out to four thousand dollars, of which one thousand, six hundred dollars is deductible. For a man in the fifty percent tax bracket, this means the savings of eight hundred dollars a year, bringing out of pocket cost to three thousand, two hundred dollars compared to about six thousand dollars annually to rent a similar home. Even more valuable to home buyers were the massive government subsidies directly and indirectly fueling the growth of the suburbs. Housing policy did more than boost the home ownership rate by favoring white buyers, it heightened the nation's racial divides and held back black families from building generational wealth. The government also determined what got built sees of single family homes with few apartments, and imposed mortgage rules giving married couples preferential treatment. The result was an unprecedented urban rural sorting of the population by family type, with lasting consequences. In conservative and conformist suburbs, most residents would rarely encounter adults living outside of marriage or publicly deviating from heterosexual norms. Historian Clayton Howard has written while left behind in cities were high concentrations of single people and others. Conventional families who played a crucial role in the sexual revolution of the nineteen sixties. When we assume parents with children are supposed to buy a single family home in the suburbs, were largely inheriting that attitude from this era. Another enduring idea about home ownership comes from the nineteen seventies, when Baby Boomers were coming of age. It's the idea that you need to buy before it's too late. Amid persistent inflation, real estate was one of the only assets that could keep up and even exceed rising price levels, despite mortgages at ten percent. In nineteen seventy four, BusinessWeek told its readers, there's little point in waiting for interest rates to slide while the cost of land, labor, taxes, and materials keeps soaring. Boomers now sit on trillions of dollars of home equity, but making money in real estate was hardly automatic for them. Business Weeks still saw euphoria in the housing sector in nineteen eighty four, but six years later it was quoting a Denver house painter declaring the boom days are over. A year earlier, the magazine relayed the complaint of a would be buyer that sounds familiar today, with the exception of the price level, a seventy seven thousand dollars starter home was out of reach, and Atlanta bank manager told Business Week, unless your grandmother dies and leaves you fifty thousand dollars. Adjusting for inflation, home prices barely rose in the nineteen nineties and then accelerated at the turn of the century in the run up to the subprime financial crisis. I watched the boom, the bust, and then the subsequent boom all from the sidelines. Maybe if I'd jumped into home ownership at some point, I'd be a lot richer now, But my timing could also have gone horribly wrong. I found some reassurance for my refusal to jump on this roller coaster ride in an October report from the conc Rational Budget Office looking at US families wealth from nineteen eighty nine to twenty twenty two. The CBO found their home equity had more than tripled, but their retirement wealth and other financial assets had more than quadrupled. Housing is still an important component of wealth, particularly for poorer people who don't have other assets, but overall it makes up just eighteen percent of Americans non social security net worth. A home may be an owner's biggest single investment, in other words, but is not usually the main driver of wealth. Other assumptions left over from the twentieth century have been undermined by economic and demographic trends, as Americans marry by homes and have children later and later in life compared to a generation ago. Suburbs are more diverse, cities are significantly safer, and both are less affordable, particularly places that fail to build enough homes. One way to revive a flagging conversation with friends I've learned these last few weeks is to ask them about their rent versus buy decisions. Everyone has an impassioned opinion, but I've noticed few people spend much time dwelling on the financial aspects of buying or renting. Some find psychological solace in having a permanent home. Others find peace in the flexibility of renting. Some love the week end trips to home depot or are eager to follow Martha Stewart's advice. If you want to be happy for a year, get married. If you want to be happy for a decade, get a dog. If you want to be happy for the rest of your life, make a garden. Others are content to leave maintenance to their landlord and gardening to the parks Department, while spending time and money on concerts or travel. In nineteen forty eight, Carrie Grant starred in a movie Mister Blandings Builds His Dream House, later remade as The Money Pit with Tom Hanks in the nineteen eighties and again as Are We Done Yet with Ice Cube in two thousand and seven. The original is an encapsulation of post war America's obsession with housing. Grant's character, Jim Blandings, decides to move his family from their cramped New York City apartment to an eighteenth century farmhouse on the verge of collapse an hour from the city. Disasters ensue, all played for laughs. Blanding's best friend and lawyer keeps warning him how much it's all costing, until a final scene when he concludes it doesn't matter. Maybe there are some things you should buy with your heart and not your head, he advises Blandings. Maybe those are the things that really count. In the context of nineteen forty eight, it's an argument for splurging on a suburban castle. But in twenty twenty five, I take the opposite lesson, at least for now. Don't buy solely for financial reasons, and certainly not because someone else thinks you should buy a home because your heart is in it.