Renting versus ownership

I knew renting in our area was expensive, but now I realize how tough it really is. This brochure for an apartment complex outside the city has prices and sizes. The cheapest 1 bedroom is $1499/month. A 3bd/2ba smaller than our townhouse is running at $2500. So how does that compare to our mortgage?

Our mortgage is $2263 + $200 HOA + 400 Property Taxes. So we're paying $2863/month pre-tax, with ~$650 going to principal. This means after tax we are actually $1700/month to "rent" our place. Of course this does not account for maintence of our home.

So in our area it appears we got a decent deal. Something we were pretty sure about. Also because of the time frame (three years and counting), the longer we stay put, the more likely buying will have won out over renting.

Now this only happens when you buy in an area of high rent. But if you buy in an area of low rents, ie San Diego, then you run into trouble. For example, when we bought prices were relatively low, so we got lucky with home appreciation. However during our 3 year period of ownership, the rent of a 1 bedroom apartment did not change from $1200/month (what our neighbor renting paid). Our PITI before taxes was $1000/month. But our purchase price in those three years went from $150k to $300k.

But since then the price of the same condo in 2005 to 2008 went down nearly $100k to $200k instead of $300k. And who knows how long until it regains it's previous levels. So renting would have put someone in a better position.

So moral of the story? Buying versus renting is completely location dependent. You can't just read a blog or expert and decide buying is always better or renting is always better. The market is dramatically different from city to city. It is impossible to understand the nuances of each market.

That being said I think the most important rule of buying is how long do you plan on staying put? At least 5-7 years, then perhaps you'll come out ahead in a "normal" market. But nothing is set in stone.