Rent VS. Own in Connecticut

May 11, 2009
Matt Isleib

 

Rent vs. Own is an age old question. And the answer differs depending on where in the country you want to live. Connecticut is LoanClassrooms backyard so a comparison into CT real estate is what we are going to do.

I recently read an article in the local Norwalk Citizen newspaper. It was an article on rents in the Stamford-Norwalk area. It is what intrigued me to do this comparison.  I read the article and thought it was good stuff.

I was shocked to learn that in the entire US the Stamford-Norwalk area of Connecticut now requires the highest hourly wage to be able to afford to rent an apartment. In a recent report from The National Low Income Housing Coalition they detailed a report on hourly wages needed to afford two bedroom apartments by state, county and metropolitan area. The Stamford-Norwalk area was the highest in the country. Danbury Connecticut ranked 8^th. As a state Connecticut was sixth in the country overall.  The study pegged the required annual income at nearly $70,000 a year to rent a two bedroom apartment in Fairfield County based on a monthly rental amount of $1,750.

 

Now let’s look at what $70,000 would get you if you were looking to buy a home as opposed to rent in Fairfield County. According to Zillow.com the median price for a 2 bedroom single family home in Norwalk, CT is $375,000. Let’s say you have saved enough to put a 10 percent down payment for a purchase. You put down $37,500 for your down payment and take a mortgage for the balance, $337,500. Based on your mortgage payment of principal and interest, your property taxes, your home owners insurance, an interest rate of 4.875% for a 30 year fixed mortgage and applicable mortgage insurance or (PMI) the housing payment is $2,400. To put that in perspective on an income of $70,000 that is pre-tax $5,833 a month. With a mortgage payment of $2,400 that leaves food, utilities, taxes, insurance, cell phone, food, car credit card, general living expenses yet to be paid. Assuming you are in a 28% tax bracket your take home pay less taxes is roughly $4,100. Meaning $1,700 a month needs to cover all the rest. That is living pretty tight. Not impossible but darn tight.

In summary the old question here is rent vs. own and based on the numbers renting for a while might be the answer at that income level and purchase price. Keep in mind we used 10 percent for a down payment. The average median price for a 1 bedroom single family home is $265,500 in Norwalk, CT. So if you want to own and are in that income level buyers market or not you will have to look hard to find something in your price range in Fairfield County. It is understandable why Fairfield County is the highest income requirement to rent in the country.