Should you buy or rent? An MIT economist shares his perspective

Should you buy or rent? An MIT economist shares his perspective


Massachusetts housing prices are some of the highest in the nation, averaging half a million in 2023.

Many people have been told that buying a home is better than renting. “Because it’s an investment,” Jon Gruber, chair of MIT’s economic department, told Boston Public Radio on Thursday. “It’s a way to kind of move your way up in the world.”

But buying a home requires allocating a significant chunk of wealth toward a mortgage and costly building maintenance. So is buying a house actually a good idea, or not?

It depends on an individual’s economic goals, Gruber said.

Take someone deciding whether to rent or buy in Worcester. They could rent a three-bedroom home for $2,000 per month or buy a similar three-bedroom property for $500,000.

If they choose to rent

They pay $2,000 a month for as long as they live there — simple as that. They can then put savings in the bank and earn interest on that money.

Our example $500,000 home would require about $100,000 for a down payment. At today’s interest rates, if someone put $100,000 in the bank instead, they would earn about $3,750 a year after adjusting for taxes, Gruber said.

“That is what we call an opportunity cost,” said Gruber. “By letting the bank hold your $100,000 [down payment], instead of you holding $100,000, you are giving up $3,750 a year after tax.”

Renting is also better in times of uncertainty. For example, if someone needs to move for a job change after only two years. And if the roof leaks right after moving in, that’s not the renter’s responsibility.

If they choose to buy

For our example home, they’ll need a down payment of about $100,000.

“You are committing a giant chunk of money to this endeavor,” Gruber said. At today’s mortgage rates, the monthly payment will be about $3,000, totaling to $36,000 a year in mortgage payments.

That might seem significantly more than rent payments, but Gruber said to remember that mortgage payments are tax deductible for most people. Under the average tax rate for Massachusetts residents, it ends up being more like $24,000 a year — a great incentive.

But mortgage payments aren’t the only costs. Homeowners are also responsible for maintenance, which averages almost $5,000 a year, according to a 2022 study by home services website Angi.

So why buy? A house is an investment that gets more valuable. Historically, home prices have gone up by about 2.5% a year, Gruber said. This $500,000 home in Worcester would be making $12,500 a year in home value.

“So on the one hand, you’re losing the money on $100,000 you could have had in the bank. On the other hand, you’re making the money on a $500,000 house,” Gruber said.

So what’s the ‘right’ decision? Do your own analysis.

Most Americans have a preexisting bias that to be successful, you have to own a home.

“I think that has been a dangerous preoccupation,” Gruber said, because it can lead to people overextending themselves financially.

“I’m not saying people shouldn’t buy homes. I’m just saying that they should do it as a rational economic calculation,” Gruber said. “They should account for their propensity to save and whether they can handle the uncertainty of homeownership. They shouldn’t do it because their parents said it was a good idea.”


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