Buy one sensible home

Whether to rent or buy a home is one of the toughest choices young people face.

A recent Deutsche Bank study compared renting vs. owning a home in 54 cities. It estimated the monthly payment on an average house, factoring in property taxes, homeowners insurance and the tax break for mortgage interest deductions.

It concluded that in 20 metro areas, it’s cheaper to rent than buy. In metro Atlanta, however, renters pay about 34 percent more than homeowners for shelter.

Most people don’t move between cities once they settle into an occupation. In large metropolitan areas like Atlanta, teachers, accountants and most other professionals change positions and advance within regional job markets, especially where state licenses apply. Most can stay put if they like, and they know whether they will want to move to another city anytime soon.

The investment climate has changed dramatically over the last 15 years, indicating that homes are a better investment than stocks, especially in and around thriving cities like Atlanta.

Many people are scared. Homes have recovered only about 40 percent of the total value they lost during the financial crisis, while stocks have set record highs.

Yet that’s a short-term view. In this century, U.S. economic growth has slowed to 1.7 percent, about half the pace set during the prior 20 years. Consequently, the S&P 500 is up only 23 percent, while the S&P index of home prices for the 20 largest metro areas is up more than 60 percent.

Young folks like to live close to work near cities, where land is scarce and construction costs higher. If anything, appreciation will be stronger in those locations.

Realtors are fond of advising young folks to plan on owning three homes during their lives: a starter home, a larger dwelling for raising children, and scaled-back accommodations for retirement.

Often, though, it’s more practical to buy one home that works throughout your life cycle. Young people should stretch their expectations for a first home. They should ask: What kind of house do we reasonably need to raise a family? Then, buy in a good school district.

Children can be raised without two rec rooms, ahome theater, 3 1/2 baths and a huge back yard. What children want most is to be close to their parents, and more sensible, uncramped space.

My wife and I raised a family in a moderate-sized row house in the historic district of Alexandria, albeit with a family room that served multiple purposes, 20 minutes from the White House. We met lots of interesting folks taking our children to city parks.