Buy vs Rent? – It’s Not 50% Cheaper In Houston Texas

If you were to believe all of the ridiculous studies that circulate on main stream media outlets from industry puppets, you might get the impression that buying a home is the bargain of a century in some U.S. housing markets. That’s the entertaining conclusion of another clueless media shill regurgitating another rent vs buy comparison in major U.S. housing markets. The latest garbage from Trulia tells us that Houston Texas is one of the 10 U.S. cities where it is 50% cheaper to buy than rent. To arrive at that comical absurdity, you of course need to put on some really big blinders.

Let’s just stop and pretend for minute that we didn’t know that Trulia is a real estate portal. Even ignoring Trulia’s real estate industry slant, the latest Houston numbers showing that it is 52.9% cheaper to buy a home than rent might make you wonder how Trulia is still in business? How could they miss the mark in the buy vs rent analysis that badly? We know Texas is a non-disclosure (no mandatory sales price disclosure) state, but still.

Let’s take a look at some real-world examples of actual MLS sales and leases in the Houston area to see how Trulia’s claim stacks up. As the following data show quite clearly, renting a home can be just as cheap as buying a home in the Houston area. Looking at the latest 3rd quarter sales for Cinco Ranch we can see that the average cost of a home was $400,925. A comparable size single-family lease home in Cinco was $2915 per month. Of course if you didn’t mind losing some square footage, the average price of a single-family lease home in Cinco was much lower at $2408 per month. Even when adjusting for similar size properties, it is only about 7 percent cheaper to buy a home than rent one in Cinco Ranch.

Looking at the latest MLS numbers from September sales in Houston, you will see a similar picture. The average price of a home sold in Houston in September 2016 was $277,849. The average price of a Houston area single family lease during September was $1764. Although the size of that average rental home was likely a bit smaller, the real monthly payment on the rental was more affordable than your average Houston home purchase. I would also point out that this doesn’t even take into account the deals you can find on apartments with Houston’s saturated multifamily market. As of yesterday, I counted no less than 6 Katy apartment complexes offering two months of free rent on long-term leases.

So how can Trulia’s comparison be so blatantly skewed toward buying? I can point to at least three problems with their analysis. First they assume every home buyer is going to benefit from itemizing deductions. That is not always the case, especially if you buy a modest home. You really need to spend over $250,000 before the benefit of itemizing kicks in. The second fallacy in Trulia’s (and most other comparisons for that matter) analysis is that they grossly underestimate the property taxes. If you are waiting on Trulia or any other real estate industry puppet to inform you about Texas’ operationally corrupt property tax system, you’ll be waiting for a long time indeed. Of course undershooting the monthly property taxes does make buying look more appealing. Third, Trulia’s median Houston home value of $176,513 is blatantly ridiculous. The cost of a median single family home sold in March 2016 was actually $209,900. The only way to get to the low-balled home value listed by Trulia is if you include all the crap shack condos and townhomes throughout Houston.

The point of this exercise isn’t to scare you out of buying a home. Indeed, buying may be the better option for you depending on your circumstances. It’s important to do your own calculations using realistic estimates for your out-of-pocket costs. As we have just seen, using pie-in-the-sky estimates from industry hacks can provide you with a false impression of the real carrying costs of owning a home. As I have said before, every day is not a great day to buy a home…Some days are better than others!

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