| In celebration of American Housing Month, the American Bankers Association Foundation last week shared a post weighing the pros and cons of renting versus buying, particularly as pertains to Millennials.
The points are good ones, although also somewhat obvious, and include consideration of money saved, debt accumulated and the overall costs of both options.
Of course these tips are aimed at a nationwide audience and cannot address regional variations without turning into a novel instead of a blog post. Still, Boston-area Millennials will find some of the advice very difficult to follow.
For example, in line with other housing authorities, the ABA Foundation recommends keeping total rent or mortgage payments, plus utilities, to 25 percent to 30 percent of gross monthly income. To afford a home with the area median of $449,000, that means an income of nearly $93,000 (assuming 20 percent down and a 30-year fixed-rate); to afford Boston’s average rent of about $2,800 for a two-bedroom apartment, the household income jumps to nearly $121,000 per year.
Those annual salary figures, by the way, are just for rent and mortgage payments; they do not include utilities, PMI, condo fees, real estate taxes or any of the other costs associated with renting or buying. About half of the city’s residents earn less than $35,000 per year, per the Boston Redevelopment Authority’s recently released report; the average salary is just shy of $55,000, per The Boston Globe’s analysis of Census Bureau statistics.
A 20 percent down payment on a $449,000 house is just shy of $90,000. Good luck saving that amount when your rent is already north of $2,000, your student loan payments are in the hundreds of dollars and your monthly T pass inches ever closer to three figures.
One point the ABA Foundation doesn’t get into, but is often overlooked in the rent versus buy conversation – though Boston’s rents are among the highest in the county and, depending on the purchase price, it would appear monthly mortgage payments would be less expensive, the additional costs of owning can quickly dwarf rental payments. PMI, property taxes and/or condo fees can easily add another $400 or more to the monthly cost of owning a home. And while associated homeownership costs, including utilities, upkeep and repairs, are not exactly “hidden,” they are often far more than the starry-eyed buyer anticipated at the closing.
It’s unrealistic – at least in a major metropolitan area – to count on spending 25 to 30 percent of one’s income on housing costs, let alone including utilities in that figure. The influx of high-paying tech jobs in recent years is certainly welcome, but there are just not enough jobs paying $120K and up (or in the case of a two-income household, $60K and up) for Boston’s residents, Millennials or otherwise, to even consider spending that low of a percentage of their income on housing costs.
To rent or to buy? In Boston, there’s no good answer to that question.
