Hidden costs

This rent vs. buy calculator from Trulia contains some pretty dubious assumptions in its calculations, making it mostly invalid unless you go in and change quite a few things. And even then, there are some costs that the majority of people will pay that are large and completely unaccounted for.

Basically, don’t trust it at all.

The calculator makes an assumption of a 20% downpayment. Most people receiving a mortgage will not be able to come up with this and thus will have to pay PMI. 

Also, the utility costs are defaulted to $100 additional month. This more realistically is $200-$500 a month, depending on where you live, the weather, and how large your house is. Many people in Michigan and similarly cold areas even in relatively small houses pay $500+ a month for heating oil or propane alone from October to March. This is assuming that most people are coming from an apartment or townhome, which is more realistic than whatever Trulia is assuming to generate $100 extra a month.

I am nearly-reflexively against home ownership, but that doesn’t make me wrong or Trulia’s accounting correct (as it is really, really not).

It also ignores harder-to-quantify costs like how difficult it is to move if you own a house and can’t sell it, which this being tied to a house appears to lead to higher unemployment.

And there is also the fact that though many people have homeowner’s insurance, this often does not or refuses to cover truly catastrophic repairs that can run sometimes into the hundreds of thousands of dollars. In other words, your risk goes up greatly from owning a house. And of course there is the risk of a precipitous decline in the housing market that could leave you underwater for a decade or more. (And don’t tell me that can’t happen again. It will happen again.)

None of this is factored into Trulia’s calculations.

If you want a house, sure, go ahead and buy one. But understand the real costs first.