- - Sunday, March 12, 2017


Whether to rent or buy a home is one of the toughest choices for young people and new arrivals to Washington or any city face these days. A recent study, published by the real estate website trulia.com, indicates most families should take the plunge.

The authors estimated the monthly cost of owning the average home — factoring in property taxes, homeowners insurance, income tax deduction benefits and the like — and compared those to comparable rental dwellings. Across the country — including some quite expensive locales like San Francisco and New York — it’s virtually uniformly less expensive to buy.

If folks need to move to another city for a new job or to be with a new spouse within a short period of time, realtor’s fees and other transactions costs can wipe out those savings but you don’t have to be in a home all that long to profit nicely.

Employing a handy calculator on the site I found that for the Washington metro area — with 10 percent down, a 30-year mortgage and a 4.25 interest rate — if the average home is occupied for 5 years after purchase, owning beats renting by about 12 percent. Extending the turnover period to 7 years jumps the savings of owning over renting to 24 percent.

Most folks don’t move between cities once they settle into an occupation. Teachers, lawyers and most other professionals operate within regional job markets, especially when state licenses apply. Most comfortably settle in and know whether they may want to move to another city in a few years.

Even in a period of slower economic growth, real estate has proven a solid investment.

In this century, U.S. GDP and inflation have advanced about 2 percent a year. Through the end of 2016, stocks returned, as measured by the S&P 500, about 4.5 percent annually, while homes appreciated 3.8 percent. Those figures don’t consider the substantial savings homeowners accomplish over renters, which they can invest each month in an IRA or an ordinary stock account. Factoring those in should easily even up the returns between houses and other investments over the long run.

The freedom to modify and further enjoy an owner occupied home — and avoid the risk and cost that you will be required to move when the landlord decides to return or sell to another investor — greatly enhance the overall value of your piece of the American dream.

As with all things in household finance — such as choosing a college or automobile that meets your needs — the Golden Mean should apply. Don’t overload on either stocks or housing in the overall family investment pie chart.

Realtors are fond of advising young folks to plan on owning three homes during the course of their lifetime — a starter home, a larger dwelling for raising children and then scaled back accommodations for retirement. But the resulting transactions and costs related to these sales and purchases can take a big bite out of what you have to save for retirement.

It’s likely more practical to buy one home that works throughout your life cycle. Young people should stretch their expectations for a first home. They should ask what kind of house do they reasonably need to raise their children and where are the good schools?

Children can be comfortably raised without two rec rooms, a dedicated home theater, three and a half baths and a huge back yard. What children want most is to be close to their parents, and more sensible, but not cramped space works well.

My wife and I raised a family in a moderate-sized row house in the historic district of Alexandria, albeit with a family room we added that served multiple purposes, 20 minutes from the White House. While we didn’t live in a mega-mansion on a huge lot, we met a lot of interesting people walking our children to city parks.

As empty nesters, we now live comfortably in the same dwelling with the prospect of retirement in a home not too burdensome to maintain.

Like others who took the same strategy, the mortgage is paid and all that money we did not spend on realtors, lawyers and mortgage bankers we invested to make our retirement more comfortable.

Bottom line: Buy a sensible home to raise your family. Hold on to it for the long haul, and it will prove a sound investment.

• Peter Morici is an economist and business professor at the University of Maryland, and a national columnist.

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