Rent Vs. Buy: In Today's Market**

Over the past ten years, the cost of rental housing in the U.S. has increased an average of 3.5% per year. If that trend continues, that means that an apartment or
home renting for $1,000 per month will cost more than $1,300 a month in ten years. If you rent the same home for ten years, the total amount you would pay for rent
will equal $140,777!

Year / Monthly Rent* / Total Annual Rent
1 / $1,000 / $12,000
2 / $1,035 / $12,420
3 / $1,071 / $12,855
4 / $1,109 / $13,305
5 / $1,148 / $13,770
6 / $1,188 / $14,252
7 / $1,229 / $14,751
8 / $1,272 / $15,267
9 / $1,317 / $15,802
10 / $1,363 / $16,355
Total Rent Paid Over Ten Years = $140,777

*avg. increase 3.5% per year

VERSUS

Homeownership
As an example, let’s look at a $200,000 home. Unlike your rental unit, your home usually appreciates over time. Instead of assuming average growth, we assume
that prices are flat in the first year of ownership and pick up, but only slightly, in the second year. In the third year of ownership, your home has appreciated to a modest $210,858. After ten years, assuming a return to an average 4.5 percent appreciation rate*, your $200,000 home will be worth $286,948. Not only do you earn a rate of return on your original purchase price, you also get a return on any
subsequent appreciation.

* Average price appreciation from 1970 to 2008 was 6.0%

Homeownership Builds Wealth for Households
The Federal Reserve Board estimates that homeowners’ net worth has ranged between 31 and 46 times more than that of renters in the years 1998 to 2007. In 2007, the
median net worth for homeowners was $234,200 compared to $5,100 for renters. Even though that difference will surely narrow as a result of house price declines since 2007, homeowners will likely still have substantially greater net worth than renters.

How do you build up your net worth? As a homeowner, you build wealth in two ways: through paying down the principle on your mortgage and through those “appreciating returns” on your home.

We know how your $200,000 home could be worth $286,948 in ten years. In addition, you are paying down the principal on your mortgage. Remember that $200,000 you borrowed at 5.5 percent over 30 years – that debt amount is decreasing every month and every year as you make payments.

Year / Home Price / Mortgage Debt / Net Worth
1 / $200,000 / $187,441 / $12,559
2 / 201,200 / 184,737 / 16,463
3 / 210,858 / 181,880 / 28,977
4 / 220,346 / 178,863 / 41,483
5 / 230,262 / 175,675 / 54,587
6 / 240,624 / 172,308 / 68,316
7 / 251,452 / 168,750 / 82,701
8 / 262,767 / 164,992 / 97,775
9 / 274,591 / 161,022 / 113,570
10 / 286,948 / 156,828 / 130,120




**courtesy of National Associateion of Realtors