MONEY OBEDIENCE

Do renters really save money in the end?

The news is out. Homeowners spend more money on their living quarters than renters do. They spend $1000 in monthly housing costs in 2009 compared with $808 for renters according to a new study by the US Census Bureau. So, renters save money – almost $200 per month or $2400 per year. You would think that these savings mean renting is more frugal than buying. But we have to look a little deeper to see what is really going on.

While homeowners spend more on housing, they end up spending less on housing as a percentage of income (20%) than renters do (31%). In other words, on average homeowners can afford owning their homes much easier than renters can afford their rented places. Think about this in real money terms. If $808 represents 31% of your income, you get to spend about $1800 of your monthly income on things other than housing. Using these average numbers, we’d calculate that a homeowner has another $4000 to spend (or to save), which is twice as much as the renter. In which position would you rather be?

This survey tells us that homeowners tend to be in a better financial position than renters. It does not even include any appreciation in home prices, which could potentially add to the wealth of homeowners. It does sound like a ludicrous idea right now since the bottom fell out of the housing market recently, but I’ve got the funny feeling that house prices might be a bit higher in 25 years than they are today.

Other bloggers have discussed this issue recently.

Jeff Rose ponders “Rent Vs. Owning” where he lists a few situations in which it makes sense to rent rather than to buy.

Hank makes his readers aware of the hidden cost of homeownership in his two posts, “Look At The Numbers When Comparing Renting Vs. Buying A Home,” and in “Sneaky Costs That Can Bite The First Time Home Buyer.”

Kyle wonders whether you really can afford to buy a home in “Can You Afford To Buy A New Home?”

Trina recounts her experience with the real estate market in a guest post at “Punch Debt In The Face.”

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We are happy to report that our post “How to Eliminate Debt with an Upside Down Mortgage” was included in the Carnival of Personal Finance hosted by “Live Real, Now”.

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