Great rent vs buy calculator on NY Times

[Pixelshot]

I just looked through this calculator, built by the NY Times web team. It's the best way I've seen (not that there aren't better ones) for comparing the costs of renting vs buying. Too bad that in my market, Washington DC, the home prices are massive. (a two bedroom row house just next door sold for $690k last month). That means I'm going to be renting for a while - perhaps forever - unless I can save up mountains of cash or find a crystal ball that tells me the home values in 5 years will rise by at least 10%

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?hp

[dragoncar]

Interesting that they changed it -- I kinda liked the old one.  Anyone know if it's still available?  I couldn't find it quickly.

[arebelspy]

Interesting that they changed it -- I kinda liked the old one.  Anyone know if it's still available?  I couldn't find it quickly.

Yeah, looks like the old one redirects to that one.

Too bad.

[Poorman]

I like it overall, but the results depend way too much on your expected rate of return in the market and the expected rate of appreciation on the home.

[dragoncar]

I like it overall, but the results depend way too much on your expected rate of return in the market and the expected rate of appreciation on the home.

That's always been true in any rent v. buy calculation

[Poorman]

I like it overall, but the results depend way too much on your expected rate of return in the market and the expected rate of appreciation on the home.

That's always been true in any rent v. buy calculation

Oh really?  Google rent vs. buy calculators and I think you'll find that almost none of them do.

http://www.trulia.com/rent_vs_buy/

http://www.freddiemac.com/homeownership/calculators/

http://www.realtor.com/home-finance/tools/rent-or-buy-calculator?source=web

http://money.msn.com/home-loans/rent-or-buy-calculator.aspx

http://www.bankrate.com/calculators/mortgages/rent-or-buy-home.aspx

Some of them ask your expected rate of appreciation, but none that I've seen, other than NYT, asks what you expect to earn by investing in the market.

[arebelspy]

Some of them ask your expected rate of appreciation, but none that I've seen, other than NYT, asks what you expect to earn by investing in the market.

They should though.  The opportunity cost of that down payment is important in the calculation.

[dragoncar]

Some of them ask your expected rate of appreciation, but none that I've seen, other than NYT, asks what you expect to earn by investing in the market.

They should though.  The opportunity cost of that down payment is important in the calculation.

Right, just because they don't ask you to define the value doesn't mean the value doesn't drastically change the results.

[Poorman]

Some of them ask your expected rate of appreciation, but none that I've seen, other than NYT, asks what you expect to earn by investing in the market.

They should though.  The opportunity cost of that down payment is important in the calculation.

I think it should be factored by a buyer, but the problem is that nobody can know the future.  The two biggest drivers of the calculator, housing appreciation and market returns, are driven by nothing more than guesses.  Somebody seriously using a calculator to decide between buying and renting needs something more rock solid than guessing about things they may know nothing about.  Therefore, I would argue that the input amounts for both appreciation and market returns should be 0% and you would get a safe estimate for whether you should be buying or not.

[waltworks]

Um, you are contradicting yourself. If the two most important factors depend on an unknowable future (I agree that this is the case) then there is no way to make the calculator "safe" or "rock solid". You just have to make some estimates and accept that as the best you can do.

-W

Some of them ask your expected rate of appreciation, but none that I've seen, other than NYT, asks what you expect to earn by investing in the market.

They should though.  The opportunity cost of that down payment is important in the calculation.

I think it should be factored by a buyer, but the problem is that nobody can know the future.  The two biggest drivers of the calculator, housing appreciation and market returns, are driven by nothing more than guesses.  Somebody seriously using a calculator to decide between buying and renting needs something more rock solid than guessing about things they may know nothing about.  Therefore, I would argue that the input amounts for both appreciation and market returns should be 0% and you would get a safe estimate for whether you should be buying or not.

[Poorman]

I disagree that these are the two most important reasons for deciding between buying and renting.  If somebody needs a rent vs buy calculator to begin with, chances are they have no business estimating something as unknowable as future home prices or stock market returns.  I reject your notion that these estimates should be made by the average person trying to figure this out.  There's too much room for error.

[arebelspy]

I disagree that these are the two most important reasons for deciding between buying and renting.

They're not the two most important reasons, but they may end up being the two biggest factors/difference makers.

If somebody needs a rent vs buy calculator to begin with, chances are they have no business estimating something as unknowable as future home prices or stock market returns.

That's not necessarily true.  I use real estate spreadsheets to calculate plenty of things for me.  Some of the things are variables that require best guesses.  Sometimes you want to try a high estimate and a low estimate to see what difference it makes.  It absolutely is a factor, and one that should be adjustable.  It's fine if they give you a preset for the people who are clueless, but you should absolutely be able to change it.

I reject your notion that these estimates should be made by the average person trying to figure this out.  There's too much room for error.

I don't know if you intended this or not, but your tone came off as quite rude, to me.

[Poorman]

It wasn't meant to be rude.  I think that's just the nature of commenting on message boards with complete strangers.  The reader tends to assign their own inflection to the words which can lead to misunderstandings.

[arebelspy]

I think that's just the nature of commenting on message boards with complete strangers.

Indeed.  That's why I was letting you know.

[zurich78]

I disagree that these are the two most important reasons for deciding between buying and renting.  If somebody needs a rent vs buy calculator to begin with, chances are they have no business estimating something as unknowable as future home prices or stock market returns.  I reject your notion that these estimates should be made by the average person trying to figure this out.  There's too much room for error.

I kind of agree with this.  But for different reasons. 

For starters, most people I know that ask rent vs buy, aren't actually asking rent + invest or buy.  They want to know, in most cases, if it makes sense to pay X more per month to own vs rent.

While I think this calculator is a good tool, I don't think it really aligns with how people view home ownership.  Most people aren't looking at it solely as an investment vehicle (whether they should is a different story).  There's the stability factor, the pride of ownership factor, the feeling that your monthly payment is going towards something rather than "thrown away", etc.  I am quite certain that if I told most people they would definitely make 0.0001% more by renting for life and investing than by buying, they would still buy because there are non-financial benefits that home ownership delivers that is probably worth that 0.0001% premium for the majority of regular people.

So I kind of think these calculators, for the majority of people, should assume that investment returns match home appreciation returns.  The expected ROI on returns from the market would have to be dramatically (and probably unrealistically) greater than returns on home appreciation for most people to pick renting over buying.

It's like putting a "Should I have children?" calculator.  From a purely financial perspective, no.  Children are almost never profitable (unless you produce the next Lebron James or something).  But it's not purely a financial decision for most people, just like home buying.