Pittsburgh Housing: Cheaper to Own than Rent (Media: rental, mortgage)

[mckeesport_alum]

Thinking of your home as an investment is a bad idea. You should buy where you want to live and because you like the house, not because you want it to be an investment. Historically, real estate is a poor investment compared to buying equities. If you want to invest, buy stocks.

[user_id]

At least in the city, it seems cheaper to own than rent. I think part of the reason for this is that the city has a large number of transient residents (students, medical workers etc) and that increases the demand for rentals, but not homes.

8~10 years ago or so I remember a number of graduate students purchasing properties for $30~80k. If they rented out a couple of rooms and stayed their for 5~6 years it was considerable cheaper than renting, but a lot of these neighborhoods have increased in prices since then and seem at a better equilibrium with rents now.

Generally speaking though its usually cheaper to own than rent, ownership involves a number of risks that renting does not. The areas where owning is more expensive are generally the areas that have seen a good degree of appreciation and ownership becomes a speculation on that appreciation continuing.

[user_id]

Originally Posted by BrianTH

Yep, as we have discussed before it is really more a question of longevity than anything else: if you can reliably plan on staying in the same place for long enough, the math will start favoring buying.

It may start to favoring buying, it depends on a number of things that you can't predict though.

Hopes talks about Pittsburgh real estate being stable, but that is only true in the aggregate. Many neighborhoods have changed dramatically over the years and if you're owning long term there is a real possibility that the neighborhood your home is in goes down hill which will greatly reduce what you can get for the home.

Another wild card is home maintenance and upgrades, short term these are usually relatively minor but long term they can became rather costly and tip the scales towards rentings.

[BrianTH]

Originally Posted by user_id

It may start to favoring buying, it depends on a number of things that you can't predict though.

It is true you have to plug in expected appreciation and maintenance rates which may not prove accurate. On the other hand, some things are pretty straightforward: for example there is a cost to buying and selling homes, so the more years you can amortize those costs over, the better buying/selling will turn out looking in the calculations.

[user_id]

Originally Posted by BrianTH

It is true you have to plug in expected appreciation and maintenance rates which may not prove accurate. On the other hand, some things are pretty straightforward: for example there is a cost to buying and selling homes, so the more years you can amortize those costs over, the better buying/selling will turn out looking in the calculations.

Sure, the home also tends to be an inflation hedge ands rents are likely to increase at a higher rate than your monthly PITI so over time this can add up to a significant savings even if you have a mortgage.

Regardless, I really hate the "rent is throwing away money" mantra. Things are vastly more complex than that. From my own number crunching in a few different areas it seems renting is a bit more advantageous in major cities and owning a bit more advantageous in suburbs where home prices are often kept in check by a growing supply. Of course, Pittsburgh due to its history does not have the same dynamics as many other cities so it behaves a bit more like a suburb. In that sense its a relatively good bargain.

[creepsinc]

People who buy their houses mainly as an investment without regard to actual enjoyment of the house are the same people who move somewhere solely based on a job. I can't imagine living like that.

[user_id]

Originally Posted by creepsinc

... are the same people who move somewhere solely based on a job. I can't imagine living like that.

Pittsburgh is filled with people that are there because of jobs, e.g., Professors, Doctors, etc. Not to mention the students.

Some people value a great job more than living in their ideal city, there is nothing wrong with that.

[Drover]

It has been my observation that where real estate is cheap, it will be cheaper to buy than to rent whereas where housing is expensive, it is cheaper to rent than to buy. The following is my semi-educated guess as to why that is:

In the latter markets, there typically aren't enough renters willing or able to pay enough rent to cover all costs. If were rent were THAT expensive, there would simply be no reason not to buy. Meanwhile, landlords hope to make up the difference in appreciation. Being able to write off expenses helps. In other words, being a landlord in "hot" markets tends more to be an exercise in investment than positive cash flow -- unless you were one of those people who bought in the 1970s or 1980s for a song, in which case you're making out like a thief. Not surprisingly, a whole lot of erstwhile rental units around here (Chicago) were sold off as individual condo units before the real estate crash.

In cheaper markets, there will be more people for whom the benefits of renting outweigh the costs, which relieves some of the downward pressure on rental rates. And in a more stable/stagnant market, there's little sense of urgency to buy for fear that the bottom rung of the ownership ladder is appreciating upward faster than your ability to grab hold of it. That keeps people in the rental market longer than in "must buy now or you'll never be able to" markets.

[ryanswindle]

Originally Posted by Drover

It has been my observation that where real estate is cheap, it will be cheaper to buy than to rent whereas where housing is expensive, it is cheaper to rent than to buy. The following is my semi-educated guess as to why that is:

In the latter markets, there typically aren't enough renters willing or able to pay enough rent to cover all costs. If were rent were THAT expensive, there would simply be no reason not to buy. Meanwhile, landlords hope to make up the difference in appreciation. Being able to write off expenses helps. In other words, being a landlord in "hot" markets tends more to be an exercise in investment than positive cash flow -- unless you were one of those people who bought in the 1970s or 1980s for a song, in which case you're making out like a thief. Not surprisingly, a whole lot of erstwhile rental units around here (Chicago) were sold off as individual condo units before the real estate crash.

In cheaper markets, there will be more people for whom the benefits of renting outweigh the costs, which relieves some of the downward pressure on rental rates. And in a more stable/stagnant market, there's little sense of urgency to buy for fear that the bottom rung of the ownership ladder is appreciating upward faster than your ability to grab hold of it. That keeps people in the rental market longer than in "must buy now or you'll never be able to" markets.

Never thought of this, but definitely back in Denver whenever I saw the opportunity to possibly buy a house I definitely ran after those chances to see if I couldn't "grab a hold of" the bottom rung and get a home. Here in Pittsburgh if I were looking I would definitely take my time and be very slow and methodical, no fear that the opportunity to get a nice house for cheap would disappear on me..

[Hopes]

Good point, Drover.

In a more expensive market, the landlord can't afford to have a vacant rental because the loan on the investment property is probably higher than a cheap market.