10 years ago the standard deduction for income tax for an individual was $6,800. In 2017 the deduction was increased to $12,000. This increase was very beneficial to lower income people who rarely were able to itemize deductions. However, it did make the tax deductable mortgage less effective since most sub-median earners wouldn't have more than $12,000 in interest. This effectively has eliminated the tax advantage for two income homeowners with loans under $400,000. So now it comes down to whether the rent is cheaper than the PITI loan payment.
Before I dive in, lets be clear that homeownership has other definable advantages over renting beyond the actuial cost of ownership. Renting also has definable advanatges, although fewer. But this is just a look based on the cost to own vs. rent. I took neighborhoods all around Vancouver for average rent for a 3 bedroom detached home with either 2 or 2.5 baths and then found recently sold comparable homes in the neighborhood to determine the cost. I used Hotpads.com for rentals and of course the RMLS for sold homes.
The typical three bedroom house in Vancouver has the following rental characteristics according to Hotpads.com
- Monthly rent: $2099.
- Move in cost with no pet / pet : $4198 / $4698.
- Rentals that forbid pets are about 45% of the market.
- Utilities are typically paid by renter but the average is 90%, a fair number of landlords pay the water/sewer bill.
- Typical renter's insurance policy $100
- Rents are currently trending up, suggesting the home will be more expensive next year when lease is renewed.
When buying the terms for move in costs and such are often negotiated in the contract. I am operating under the assumption that the buyer negotiated to have seller pay loan closing costs on FHA and VA loans, even if they had to pay a little more for the house to get that. Mortgage rate data based on Washington State wide averages for last month. Taxes based on typical Vancouver assessed vale and millage rate. Typical three bedroom detached house in Vancouver has the following sales characteristics according to the latest data on the RMLS:
- Home price : $454,718
- Move in costs 20% Conventional / FHA / VA : $97945 / $15915 / $0
- PITI* Mortgage Payment 20% Conventional / FHA / VA : $2097 / $2696 / $2497**
- Although home values are still trending up, homeowners effectively lock in their payment with a fixed rate mortgage. Property taxes and the cost of insurance can fluctuate in either direction depending on trends.
* PITI stands for Principal, Interest, Taxes, Insurance insurance includes Mortgage Insurance and Homeowners insurance.
** VA loans have special characteristics for Disabled Veterans that make the loan more affordable and could lower the payment. Check with a local loan professional for more info.
These scenarios for both rentals and purchases are generalized and anyone seeking to either rent or own a home should consult with a licensed real estate professional before making any decisions.
So it seems that renting in Vancouver overall is probably a bit cheaper in both monthly payment and move-in costs. However renters remain at the mercy of landlords that are trending towards substantial rental increases that significantly raise monthly expenses vs. a fixed rate mortgage that remains constant. Property taxes will fluctuate over the years, but that is a much smaller piece of the monthly expense.
Overall the rule should be that if you intend to stay local for 3-5 years or more, buying is by far the best approach. If you are someone that is not locally committed for a long term residency, renting is probably best.
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