I struggled to understand how renting can be financially better than owning your home. Then I ran the numbers. Right now in my metro area, it's not even close: renting is far better

It always made intuitive sense to me that taking out a mortgage would generally be a better financial decision than renting, given that a mortgage is kind of like a rent payment with the difference being that some portion of your mortgage is going toward building equity wealth, and at the end of the lease term you now don't have to worry about rent any more.

But I had also heard various people say that it can actually be better in the long term to rent and invest the down payment and any cost savings into stock index funds.

To see how that might be possible, I ran the numbers in an excel spreadsheet with inputs from averages in my metro area (Atlanta, Georgia) and relevant national averages.

Inputs:

• Starting home value: $359,500 (median home value in Atlanta metro area)

• Down payment: 10% of starting home value

• Mortgage term: 30 years

• Mortgage rate: 6.09% (current national average for 30-year fixed rate mortgages, per Freddie Mac)

• Annual home value increase: 4.39% (average annual increase in Case-Shiller index since 1987)

• Annual investment return: 9.5% (average nominal total return of S&P 500 for the past ~100 years)

• Private mortgage insurance rate: 0.58%

• Property tax rate: 1.62% (city of Atlanta rate millage rate at assessed value of 40% of fair market value)

• Annual home maintenance costs: 1.5% of home value

• Price-to-rent ratio: 18.25 (taken from dividing the median home price by the median rent payment in the Atlanta metro area, per Census Bureau, 2021)

• Long-term inflation rate: 2.5%

Assumptions:

• The hypothetical renter invests the would-be home down payment in a stock index fund returning 9.5% annually, and invests monthly the difference between the homeownership cost and the rental cost, if there is one.

• After the mortgage is paid off, if the homeownership costs are less than the rental cost, the homeowner invests the difference in the same stock investment

• Total cost of homeownership equal to PMI expense plus mortgage expense plus property tax expense plus home maintenance expense plus homeowners insurance minus mortgage interest tax deduction benefit.

• PMI is required until home equity is equal to 20% of the initial home price

• The price-to-rent ratio stays constant

• Refinancing is not an option

• Homeowners insurance expense equal to $116 monthly (current Georgia average), then increases at the rate of inflation thereafter

• Mortgage interest deduction tax benefit calculated as the amount of interest paid net of the standard deduction for a single filer at a marginal rate of 24%, with the standard deduction creasing at the rate of inflation

• The renter and the homeowners continue their strategy until retirement age (in my case, when I'm 65 in 2061). I consider this the logical stopping point, as the renter retiree could likely buy a home with his proceeds if he wanted.

Output:

Note: assets are not adjusted for inflation so are 2053 and 2061 dollars, respectively. Also, these are only assets related to the home ownership investment strategy, not retirement savings.

As you can see, renting is currently more than twice as good as buying the same home with present interest rates, home values, and cost of renting. You have to lower the mortgage interest rate to 2.2% or lower the price-to-rent ratio to 14 for buying to make more sense than renting in this market, from a purely financial point of view.

Let me know if I made some mistakes in my reasoning or made incorrect assumptions somewhere.