Buyer Beware: Housing Calculator Compares Cost of Owning vs. Renting in 379 Regions

June 26, 2007

Buyer Beware: Housing Calculator Compares Cost of Owning vs. Renting in 379 Regions

For Immediate Release: June 26, 2007

Contact: Alan Barber, 202-293-5380 x 115

Washington, DC: The Center for Economic and Policy Research (CEPR) released today an updated online Housing Cost Calculator that enables users to compare the cost of owning a home vs. renting in 379 metropolitan areas.

CEPR's calculator provides potential homeowners with an easy way to calculate how much a new home will cost them over time. It compares the amount of additional cash available to a renter with the amount available to a homebuyer who sells a home at a specified time in the future. Users simply punch in data such as house price, region, down payment, mortgage rate, tax bracket, and the year they expect to resell the house.

In the two years since the original Housing Cost Calculator was launched, it has enabled potential homebuyers to evaluate the cost of homeownership, assuming that house prices eventually return to their long-term trend path.

Over the last decade, there has been a record increase in U.S. house prices, with prices rising by more than 70 percent after adjusting for inflation. By contrast, rents have risen only slightly more than the rate of inflation over this period. People who buy a home at a bubble-inflated price -- and then see the price plummet in the crash -- may lose much or all of their equity, which comprise the bulk of most household’s wealth. Homeowners are still taking on mortgage debt rapidly, even as their homes have largely stopped appreciating in value. Homeowners increased their mortgage debt at a 5.4 percent annual rate in the first quarter of 2007, adding debt at an annual rate of $510 billion. This pushed the ratio of equity to value to a record low.