From: bible@iastate.edu (Anthony E Bible)
Subject: Re: Cost-Benefit Analysis of Renting vs. Owning
Organization: Iowa State University, Ames, IA
Distribution: misc
Date: Thu, 15 Oct 1992 19:16:33 GMT

In article <MITCH.92Oct15105049@giesy.mitch.b17a.ingr.com> mitch@giesy.mitch.b17a.ingr.com (Mitch Giesy) writes:
>Is there any question that owning a house is far more
>financially beneficial than renting? This discussion has thus far

	I believe there instances where the answer is yes.  Examples include:
when housing prices are falling and when your job is tenuous and when you are
not likely to be in the same area for much longer.


>overlooked the following simple facts:
>
>           A home is an appreciably asset. A [constantly increasing]
>           portion of a monthly mortgage payment goes toward the
>           owner's equity in the home. This is an investment. What is

	This is true for fixed-rate mortgages.


>           Compare apples and apples. The monthly expense of owning a
>           home should be less the accumulating equity and the tax
>           benefits. Compare this to monthly expense associated w/ renting.

	Well, the "tax benefits" reduce the bite of the interest and property
taxes, but those are still expenses that do not go into increasing your equity.


>           Over time, the homeowners monthly expense will decrease, as
>           more money out of each mortgage payment goes toward equity
>           in the home. The renter's rent check will always increase,
>           being subject to inflation. After 15 or 20 years, the

	Unless there is deflation.


>           omeowner has paid off his mortgage, and only has to pay
>           property taxes and insurance - a small monthly amount. The
>           renter is still paying his/her rent at going rental market
>           rates. I have owned a home for 3-4 years. I'm already

	Well, many if not most home buyers opt for 30 year mortgages, but your
point is still valid, i.e., once it is paid off your out-of-pocket expenditures
go down.  I am not sure I would agree that property tax and insurance are (will
be) small monthly payments.  I recall California's Proposition 13 implementing
restraint on property tax because it was rising so rapidly in the early 70's.
It is possible for those two items to become larger than your original house
payment in a high inflation environment, for example.  Also, you have not
mentioned maintenance costs which add to the costs of owning your home (price a
new roof sometime; grim) or special assessments if the city needs to do some 
street or sewer work.
	Your comments also imply that the value of your house will stay the
same or even appreciate.  Hopefully this will be true.  Recent experience in
New England and California suggest it is not invariably true, however.
	Let me say that I am purchasing my own home and usually prefer living 
in it to living in a rental.  Also, friends of mine own homes in areas where
the price of housing has soared since they purchased, and the value of their
equity has gone up correspondingly.  However, people who have purchased homes
in areas where prices have fallen over the past few years (25% or more) owe
more on the house than it can be sold for.  They can't re-finance because they
would have to come up with even more money for the bank, and they can't sell
because they would have to come up with money to pay the difference between the
selling price and what they owe.

	No flame intended nor implied here.  Your experience has been good.  It
is not true for some others, however, and should be considered as only one
scenario.  My opinion.

Regards,
tony
Newsgroups: misc.invest