The debate over renting vs. owning has long posed a challenge for households in California. Arguments have morphed in recent years as home prices and mortgage rates soared beyond the increasing rents. To illustrate the complexities, we’ve created a hypothetical rent vs. buy scenario to track housing finances over a 30-year period. However, the math doesn’t account for the intangibles: the flexibility of renting compared to the stability of owning.
HOW MONTHLY COSTS COMPARE
Key in any housing calculation is monthly cost. Our example estimates California house rent today at $4,000 a month vs. buying a $900,000 house with a 10% down mortgage at 6.5% plus property taxes, insurance, association fees, and repairs. The scenario assumes costs grow with historical inflation and the mortgage rate is lowered twice by a half-point through refinancing.
RUNNING THE TAB
Homeowners need to repay their mortgage plus cover a range of additional costs. So renting’s total costs run cheaper for nearly two decades. But owning ends up costing slightly less over time. Here’s cumulative costs by year, in thousands of dollars.
THE BOUNTY: Ownership’s edge
Owning’s true financial benefit arises from the increasing value of the home. Assuming historical gains of 5% per year, the owners gets a $3.8 million asset after 30 years. The renter, who hypothetically invested the $90,000 down payment in the stock market, would accumulate $929,000. Here’s investment value by year, in thousands of dollars.
WHERE IT GOES
Look at the slices of 30 years of housing expenditures, rent vs. own. The renter just pays the landlord. Owner costs go to principal and interest on the mortgage, property taxes, home insurance, association fees, and repair and maintenance costs. Note: Interest payments and property taxes can be tax deductible.
A HISTORY LESSON
Look at the past 30 years of historical returns for three key factors in this rent vs. buy calculation, using 10-year moving averages for rent (California Consumer Price Indexes); home values (federal California index) and stocks (Standard & Poor’s 500).
Unfathomable, unaffordable
California’s long-running and steep affordability crunch makes the rent vs. buy debate a moot argument for many people. Housing costs throttle numerous California family budgets. The state’s flock of high- paying jobs pushes up housing costs well past what more typical paychecks can easily afford. That’s true for households considering renting or buying.
Stagnant ownership
Stubbornly high ownership costs have kept California’s share of people living in homes they own relatively stable, except for a temporary surge in the early 2000s when mortgages were too easily obtained. Those risky loans played a key role in the Great Recession, as borrowers defaulted in huge numbers.
Housing afforability index
It’s tough to be a California homebuyer. The estimated number of Californians earning the statewide median income who could comfortably purchase a single-family home is falling sharply, according to a California Association of Realtors index. The Golden State share of qualified buyers is significantly below the national norm.
Housing-cost stresses
The 2024 edition of Census housing data details how California’s cost of shelter varies between renters and homeowners — with or without mortgages on the property.
But because renters typically earn less than owners, it’s more likely that their housing costs exceed 50% of their household incomes, an extreme level of financial stress.
Big housing worries
A statewide survey last year asked “How often do you worry about the cost of housing for you and your family?” Those who said “every day” or “almost every day” …