Spurred by some comments to a previous post I quickly run these numbers. They analyze the case of house price not rising in the next five years. I’ll take more time to check them if I really get to a point of deciding, but they should be correct.
This data (fairly typical in my area):
Home price: $200,000
Down payment: $0
Interest rate: 6%
Monthly mortgage: 1210
Annual gains on investments: 6%
If I run this for 5 years and house appreciation 0% I get:
$33,043 on investing the rent-mortgage difference
$30,609 on paying the mortgage (equity accumulation + tax savings at 28%)
If we assume to put down 20% to buy the house then the numbers are even worse:
$83,542 on investing the down payment and the rent-mortgage difference
$67,548 on paying the mortgage (equity accumulation + tax savings at 28%)
There are other things to consider: house repairs for houses, annual raises in rent, etc… etc…
Are those assumptions reasonable? So it is better to rent than to buy? Well, over the long term houses do tend to appreciate and the more leverage you have, the more you reap the benefits. Over the short term, run your numbers. There are so many assumptions you can make, that it become almost a personal opinion what is best.
Running the numbers help you in making sure than it is at least an informed opinion. It makes your assumptions explicit