The comparison most people get wrong
Comparing rent to a mortgage payment is not a fair fight. Ownership adds property tax, insurance, maintenance, and roughly 3% in purchase costs plus 6% in selling costs. Renting has an offsetting advantage that is easy to forget: the down payment stays invested. A serious comparison nets both sides out over your actual holding period.
The break-even horizon
Transaction costs dominate the early years. Buy a $450,000 home and you will spend roughly $13,500 acquiring it and $30,000 selling it. Against that, your first-year principal repayment on a 6.5% mortgage is only about $4,000. Appreciation has to do the heavy lifting, which is why the break-even usually lands somewhere between year 5 and year 7 — sooner in a fast-appreciating market, later or never in a flat one.
What buying actually buys
- A fixed housing cost. Rent compounds; a fixed-rate principal and interest payment does not. Over 20 years that gap becomes enormous.
- Forced saving. Principal repayment is saving you cannot easily skip.
- Leveraged exposure. A 20% down payment means a 3% price rise is a 15% return on your capital — in both directions.
- Control and security of tenure. Hard to price, genuinely valuable to many people.
What renting buys
Mobility, which is worth real money if your career or family situation may change. No exposure to a $15,000 roof or a $9,000 HVAC replacement. No risk of negative equity. And liquidity: your savings stay accessible rather than locked into an illiquid asset that costs 6% to convert back into cash.
Assumptions that swing the result
Appreciation and investment return are the two levers that dominate the output. Long-run US home price growth has run modestly above inflation, while diversified equities have historically returned more — which is why the calculation is closer than the "renting is throwing money away" folk wisdom suggests. Try the calculation at 2% appreciation as well as 5%; if buying only wins under optimistic assumptions, treat that as information.
A practical rule
If you are confident you will stay put for at least five to seven years, have a stable income and an emergency fund beyond the down payment, buying usually works out. If any of those are uncertain, the flexibility of renting is worth more than the equity you would build.