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Jeff D. Opdyke: Rent vs. buy calculators — with rates so low, they might be useless

Jeff D. Opdyke, on

Published in Home and Consumer News

Rent vs. buy? It's an age old question in real estate. And one that never seems to have a clear answer.

Where any one person lands in that debate often boils down to their financial beliefs. Owning a house, one side rightly argues, builds wealth through building equity. Renting, the other side rightly counters, avoids all the costs that homebuyers never really factor into their equity calculations.

In an effort to address that, all manner of rent vs. buy calculators have cropped up. Problem is, these calculators don't always calculate the same results, even when given the same inputs.

Consider, for instance, a $320,000 house (the U.S. median) purchased with a 30-year mortgage at a 3.25% rate. Freddie Mac's calculator says a homebuyer will save $56,600 over the average 13-year stretch most own their home., using the same inputs, calculates the savings at more than $95,000. NerdWallet claims a homeowner saves $76,000.

We live in an unusual moment in financial history, with abnormally low interest rates and savings rates. Mathematically, that favors home buying since interest costs are lower and returns on savings (which would benefit a renter) are miniscule.

If we crank up the interest rate to a historically normal 6.5%, and push savings rates to a 5%, then Freddie Mac calculates a buyer comes out ahead by almost $12,000, while NerdWallet says it's just under $37,000., however, calculates that buying wins out by more than $135,000 -- which underscores just how widely these calculators can vary.


The New York Times' otherwise spiffy interactive rent vs. buy calculator doesn't show how much you'll save with either option. Instead, it takes in all the same data but calculates a number below which it makes sense to rent. So, for instance, with the same basic inputs as above, the Times determines "If you can rent a similar home for less than $1,278 per month, then renting is the better buy."

So, the calculators are endlessly entertaining but perhaps not so useful, especially in the current environment. There are some other things to consider if you're mulling buy vs. rent:

Job-growth markets. Cities that are attracting population tend to be attracting jobs, which suggests they might be better for homeowners. Housing demand keeps rental prices elevated, and generally pushes home prices higher at a pace faster than the national average. (Of course, as with so many facets of real estate, there's another big caveat here: housing supply. Too much supply, even in a strong market, can weigh on prices. Too little supply, even in a downtrodden market, can undergird prices; think of the West Coast.)

Caveat aside, Census Bureau and Bureau of Labor Statistics data point to these as job- and population-growth cities:


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