Buying a house

My blog covers a wide range of topics. Often, economics is one field I poke around. This post is inspired by a conversation with my coworkers about a week ago. They suggest I purchase a house in the current market/economy. At the moment, my job is not secure at Spansion due to Chapter 11 bankruptcy, but that may change over the next few months. It is uncertain. Putting that aside, I am going to discuss why someone should NOT purchase a house at this time. My coworkers were correct in the past sense. I should build equity in a house. Yes, I am throwing away money in rent. Those statements are true in the Austin home market until the recent housing bubble (yes there is one in Austin) and the current state of employment within Austin. It is not wise to currently buy a house.

First, it is a false statement saying that buying a house is a little more than paying rent. Bull. The breakdown below will show you why. These are approximations.

Renting a 2 bed 1 bath apartment per month in Austin, TX:
Base rent = $900
Renters insurance = $50
Utilities = $100
Upkeep = $0
Total = $1050

The average home price in Austin is $187, 000 according to the Austin Chamber of Commerce. This is low compared to many places like California and Florida, but it is quite a bit higher than surrounding areas. Using a mortgage calculator and the average home price to get the monthly mortgage payment after a 10 % down payment at 5% interest.

Buying an average priced home in Austin, TX per month costs:

Base mortgage + Mortgage insurance + Tax = $1395
Homeowners insurance = $100
Utilities = $150
Upkeep = $200
Interest tax break = -$125
Total = $1720

Note folks, this is a 63 % payment increase over just renting alone. This does not even take into consideration the down payment of $18,700 and the extra fees of paying escrow along with a realtor (6% commission). In reality, it is about 73 % more expensive to buy a house. It is not a slightly higher cost to buy a house in comparison to renting an apartment.

This is part 1 of 2 posts that makes the simple point of purchasing a house is not slightly more than renting an apartment. The next post, part 2, will discuss why one should wait to buy a house a couple of years from now.