Housing Costs vs Cost of Living

When you buy a house, most people focus on how much house they can afford. This number is generally based on what the banks look at, what's called your front-end ratio which is the sum of your mortgage (principal + interest), property taxes and house insurance. But there are many more costs involved in home ownership, which I outlined in an article titled The True Cost of Home Ownership.

Everyone, homeowners and renters, have monthly utility costs like phone, cable and electric bills to pay each month. Where the big difference lies is in home repair costs as landlords are responsible for most repairs, not renters. That's why the report Beyond the Numbers, A comparison of 25 years of consumer expenditures by homeowners and renters, from the US Bureau of Labor Statistics.

This is a great resource for people trying to decide between renting or buying a house, comparing costs from 1986 to 2010. Even better is the fact that they break down housing costs into four categories, to provide more insight into the true cost of home ownership.

Housing Costs Beyond the Mortgage Check

First it's important to point out that housing costs remain the largest consumer expense at 29.1%, followed by transportation accounting for 15.5% of the average consumers expenditures. In 2013 the only consumer costs that increased were healthcare (2.1%), housing (1.5%) and transportation (0.1%). Food expenditures stayed the same in 2013 but food at home increased 1.4% (great as you're likely to eat healthier at home) at the expense of “food away from home” which decreased 2.0%.

So first let's look at how the different housing costs are split out in these numbers, as remarkably the numbers are pretty similar between homeowners and renters.

• Shelter – for homeowners, includes mortgage interest and charges,property taxes, insurance, maintenance, repairs and other expenses where renters pay rent, and should purchase renters insurance to cover their personal property. 
• Utilities, fuels and public services – include natural gas, electricity, fuel oil, telephone services, residential phone services (land lines, VOIP and phone cards), cell phone service plus water and other public services – which likely is where trash removal is covered.
• Household operations – covers … personal services (cleaning possibly?) and other household expenses.
• Housekeeping supplies – includes laundry and cleaning supplies, other household products, postage and stationary.
• Household furnishings and equipment – covers household textiles (guessing towels, sheets, etc), furniture, floor coverings, major appliances , small appliances, housewares and miscellaneous household expenses.

Note: The pie chart above is for 2012, developed by Credit.Loan.com, while the numbers below are for 2013. What in'ts included in “housing costs” is the principal payment that's part of your monthly mortgage, because that's really a form of savings. (Read: Invest in Your Home for Retirement Savings)

Housing Costs – Similarities and Differences Between Homeowner and Renters

Data is great but it doesn't always tell the full story, so here are some interesting facts that are highlighted in the Beyond the Numbers report reflecting changes between 1986 and 2010.

• The number of homeowners increased 36% over the 25 years. In 2010, there were 121 million “consumer units”, and the percentage of homeowners increased to 66.5% from 62% homeowners in 1986.
• Homeowners continue to spend more on housing but … renters spend a larger percentage of their income on housing. 
• Housing costs are continuing to grow, taking a bigger share of consumer spending. Homeowners spending for housing costs grew from 30% in 1986 to 33% in 2010 while renters costs jumped from 33% in 1986 to 38% in 2010.