Where to Live: Something
Old, Something New, or Something Rented?
LPETTET/pikappa/Zerbor/iStock
In
the world of real estate, it qualifies as The Big Question: “Should you buy or
should you rent?”
But let’s dive deeper into the realities of the 2016
marketplace. The seemingly simple category of “homes for sale” actually
covers a mind-bending number of different options. So maybe the better question is: “Should you
buy a new house, buy an old house, or just keep on renting?”
It’s
easy to see the emotional appeal of each. Buy a brand-new home, and you can
customize it to your own (cultured? progressive? freaky?) personal taste, then
move in knowing that no one else’s fungal toes have ever slid over the
bathroom floor. An older home might have more character and some interesting
history, and be in a well-established neighborhood that you love.
And renting?
Well, it allows you to pull up stakes with just a few weeks’ notice, ready to
follow a new job opportunity, a budding romance, or a national tour with the
reformed Guns N’ Roses. It also enables you to set down some roots without
the financial onus of a hefty down payment.
But
putting emotions aside, how do the new, old, and rent options compare when it
comes to real numbers and tangible features? Let’s go to the data!
What it’s really going
to cost you
Price
is often the biggest hurdle to homeownership. Considering that the median list
price on our website is $228,000 and an average home buyer puts a 12% down
payment in 2015, that’s $27,360 in cold, hard cash. Last year, home prices rose
5% to 7% nationally, says our chief economist, Jonathan
Smoke. These rising
prices, often outpacing pay raises, have held back many a would-be home buyer.
Does
that mean renting makes more economic sense? Not really—rent increases are even
crazier. Nationally, the average apartment rent stands at nearly $1,180, up
from about $1,125 a year ago, according to the Wall
Street Journal. But in the 20 biggest metropolitan areas,
asking median rent reached $1,868 in November 2015, a whopping 13.6% increase
from a year ago, according to Altos Research.
That
makes buying a home sound better and better. But due to shrinking inventory,
competition among buyers is likely to be fierce this year, says Smoke. One
savvy strategy is to consider new homes, which are typically overlooked by many
buyers. Price is one primary reason: In November 2015, the median sales price
of existing single-family homes, not seasonally adjusted, is $220,300; and new
homes command a median of $305,000—almost 40% higher.
But
that higher price tag might not wind up being as much of a financial burden as
it may seem. Sometimes you need to dig a bit deeper to understand what you’re
getting for the steeper initial cost of a new home.
“An
existing home is more likely than not to have some kind of maintenance issue,”
says Smoke. “For a new home, everything is brand new and typically covered by
a warranty. Most new-home owners will get a one-year warranty for
labor and materials, two years’ protection for mechanical defects—plumbing,
electrical, heating, air conditioning, and ventilation systems—and 10 years for
structural defects.
Assuming
that a new home incurs no maintenance cost for the first five years,
here’s the cost comparison of a new home and an existing home within the same
period. HGTV advises homeowners to set aside 1% to 3% of an existing home’s price for maintenance
and repairs each year. The following graphic uses the conservative estimate of
1%—it would obviously be way higher if the home were in
lousy condition.
As
for rental prices across the U.S., they just keep heading skyward with no end
in sight. According to current levels, a typical renter would pay more
than $70,800 for five years of housing. And, yeah, the house (or any kind of
equity) isn’t included.
Bottom
line: If you can afford the new-home price, you’ll get more value than you
think.
What you’re going to
get
The
three types of housing offer distinctive features that essentially speak to
different lifestyles.
For
each category, we measured how often a particular feature is mentioned in
listings to figure out how common it is. We used single-family homes built
in 2015 as our indicator of new homes, and those dating to the 1980s—when
the majority of our for-sale listings were constructed—for existing homes.
With
a new home comes modern living: Spend time with family in the open-concept
living room, whip up some blanquette de veau with your stainless-steel appliances in a
chef’s kitchen, keep your clothes organized in the walk-in
closet (or maybe even a glam room!). Many new homes are also touted
as energy-efficient, which saves money on utility bills.
Older
homes often come with cozy features that may or may not seem dated. They could
be wall-to-wall carpeting and fireplaces, or even wet bars!
As
for renters, you are trading one convenience for another. Many buildings
offer amenities such as a 24-hour fitness center, community pool, and
doorman, but some specifically say no pets or no smoking (unless you want to
kiss off your security deposit forever).
Location, location,
location
New
homes offer a slew of tangible merits, but the best locations aren’t among
them. It’s one of the prime trade-offs: Generally speaking, the most
desirable addresses and neighborhoods are already filled with existing
development.
But
it’s a different story for rental units, many of which are in (old and
new) apartment complexes in urban neighborhoods. As a result, rental units
usually offer the highest levels of convenience in terms of proximity to
restaurants, shopping venues, and public transportation. After all, renters
tend to be young, social, and mobile.
For
older buyers seeking a good education for their children, existing single-family
homes are more likely to be located near established school districts. If
you search the listings for “great schools” or “top schools,” you’re even more
likely to find your perfect match.
Yuqing Pan covers data-driven stories at realtor.com.
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