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April 4, 2008

Mortgage vs. rent

In the Baltimore metro area, a cheaper-than-typical house -- 75 percent of the median price -- will run you about $1,800 a month if you have a mortgage with a 7 percent interest rate. But rent is just a shade over $1,000. 

So says a study released yesterday by the Center for Economic and Policy Research and the National Low Income Housing Coalition, which suggests that this difference, and the even starker gaps in markets like New York and San Francisco, is a problem for stretched homeowners.

From the press release:

According to the report, which analyzed data from the Census Bureau's American Community Survey (ACS), the most inflated markets currently see monthly homeownership costs outpacing rental costs by as much as 300 percent. ...

"This could mean that families may have to forgo health insurance or quality child care as they struggle to make their mortgage payments," said Dean Baker, Co-Director of CEPR and an author of the study. "Furthermore, since prices are still falling in these markets, many homeowners won't ever accrue any equity."

The study projects an equity loss of more than $30,000 in the Baltimore area after four years. It puts the figure at $100,00-plus in some markets.

Posted by Jamie Smith Hopkins at 6:34 PM | | Comments (6)


Interestingly, the study assumes a property tax rate of 1.2 percent. In baltimore, it's actually 2.4 percent. This study actually underestimates the ownership cost in baltimore.

But according to Realtors, its a great time to buy.... I'm enjoying paying my 1200 rent for a place that a mortgage would cost 1900 plus taxes, upkeep, etc...putting it at more like 2200 per month.

I'm curious Jamie, how much would the tax break be on the mortgage at the end of the year, if we were examining the same terms?

Good question, Jonathan. I just ran the numbers through a rent-vs.-buy calculator, which suggests that the tax break benefits wouldn't amount to enough in the near term -- a seven-year period -- given a no-appreciation climate. (I haven't yet found a calculator that allows for negative appreciation.)

The NYT calculator allows for negative appreciation:

Ah, thanks, Anon.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
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