Gas station without pumps

2021 September 27

Cost of owning my home

Filed under: Uncategorized — gasstationwithoutpumps @ 21:34
Tags: , ,

I decided this week, for no good reason, to try to estimate how much I pay for housing and utilities.  My situation is a bit unusual for Californians, in that I’ve owned my house now for almost 35 years (so my property taxes are fairly low, because of the stupid way that Prop. 13 tax limitations favor old money), and I’ve long since paid off my mortgage.

I put together my estimates by looking at recent bill payments—for things that are roughly constant, I just looked at the most recent month, but for variable things (like natural gas billing), I looked at a full year’s billing. The hard part is trying to estimate expenses that are less frequent than annual—amortizing tree care, appliance replacement, and home maintenance.  Those estimates are really very rough.

Appliance replacement is based on rough estimates of the total cost of all appliances (furnace, water heater, stove, refrigerator, dishwasher, washing machine, dryer, wall furnace) and assuming a 10–20 year life span.  I did not include the possibility of early replacement to eliminate natural-gas appliances for environmental reasons. Window replacement estimates may be a bit high, as we have replaced all the windows in the house now, mostly with much higher quality ones than were here originally.  I’ve not included anything for plumbing or general repairs, because we haven’t done any recently enough for me to make estimates. I’m also not including any home improvements, though I do have some ideas for things I’d like to have done (like putting in a new driveway gate and replacing some of the concrete driveway, sidewalk, and curbs).

I split the natural-gas charges between heating and other uses, because we turn off the heat for the summer, but other uses stay roughly the same every month, so the monthly bill information from PG&E (using https://pge.opower.com/ei/x/energy-usage-details) made estimating the split fairly easy.  The electric billing is not usefully obtained from that website, though, as they do not include the minimum distribution charge.  My electric bill is likely to go up over the next few years, as the very favorable E-6 time-of-use plan is phased out for one that provides much less benefit for net-energy metering.

Category Annual expense
Property tax $4993
Homeowner’s insurance $2433
Water/sewer/garbage $1764
Internet $960
Natural gas heating $600
Appliance replacement $600
Painting (much cheaper if we do it ourselves) $600
Phone (2-phone Google fi, no landline) $530
Tree care $500
Natural gas (hot water, stove, dryer) $400
Fence replacement $300
Window/frame replacement $300
Electricity (minimum grid-connection charge) $130
Total $14110

I was aware of the size of the two biggest contributors, but I had not previously added up all the utilities, nor estimated the amortized maintenance costs. Even with all the amortized expenses, owning the house is much cheaper than renting, but if I sold the house, then new owners would have a much higher cost (the property tax would rise to about $17,000 and there would almost certainly be mortgage payments and title insurance).  With current house prices and mortgage rates, it would be cheaper to rent in Santa Cruz (if you can find a place to rent) than to buy a house.

4 Comments »

  1. This is an interesting exercise that is particularly relevant to us these days (because we don’t currently own a house). I’d challenge the last sentence, though, by noting that house prices increase resulting in:

    Increasing rents over the years while a mortgage payment is fixed for 30 years. By dated estimates, rents increase about 5% / year [https://www.deptofnumbers.com/rent/california/santa-cruz/] but currently the number is probably higher
    The tax on a home that you own typically increases less in a year than if you buy the house in 1 year and have it assessed then.

    For SC, home values have increased about 10% per year over the last 5 years [https://www.redfin.com/city/17680/CA/Santa-Cruz/housing-market], implying that your net gain from owning a $1.5m home is currently about $12500/month (!!). Even with lower appreciation rates (Zillow puts it at 3% yielding $45000/year) this is still making a mortgage a very decent investment.

    Further,

    A big portion of your monthly mortgage is effectively your own, since it’s used to pay down a loan (initially about $2000/month for a $1.2m loan)
    I’d argue some of the minor costs above (internet, electricity) belong under a separate “utilities” that are independent of “housing”.

    Considering this, what’s the cost of renting for another year vs buying?

    We’ll save approximately $25000/year on costs you noted in your post
    We’ll be paying ~$4000/month rent (median of available 3bd/1bath homes available in SC) instead of $6300/month (assuming a 3.0% IR on a $1.5m loan) saving us $27600/year
    We wouldn’t be paying off on a loan, so effectively losing $24000/year (more in later years as the loan amortization schedule keeps principal and interest balanced)
    Rents will go up $4800/year (assuming a rate hike of ~10% in lockstep with home values)
    We will effectively lose $150000 appreciation on $1.5m house (assuming ~10% value increase)

    In total, the comparative cost of renting is currently 150000+4800+24000-27600-25000 = $126200/year. A major factor here is the yearly rate of increase in home values, so let’s make that a variable and calculate at which point renting breaks even with owning: 1.5m * x + 4000*12 * x + 24000 – 27600 – 25000 = 0 => x = 1.8%.

    So how do I decide whether to buy or rent? Depends if I believe house prices will increase less than 1.8% (which I don’t) and whether I think I can invest that required 20% down-payment better (which I can’t .. also, I’d have to pay capital gains tax on any investment earnings).

    I’m definitely leaving out several major issues. We’re considering buying in the SC mountains where there’s more land around the houses and it’s not uncommon to have an ADU on the property that can potentially generate rental income. This makes home buying a very attractive investment to us.

    Comment by RFon — 2021 September 28 @ 10:18 | Reply

    • Owning one’s own home is a really good deal after the mortgage is paid off. Before that, the financial value depends mainly on the appreciation. My house in Santa Cruz has appreciated at an annualized rate of 5.7% for the past 34.5 years (assuming Zillow’s estimate is accurate), and that doesn’t account for the money put into it for some expensive remodels. For my first house (in Ithaca, NY), the appreciation has only been about 3.1%/year for the past 35 years—the market there has only recently gone up much. So if I’d stayed at Cornell rather than moving to UCSC, I would not have gotten much appreciation on the house. In contrast, the stock market (S&P500) has been growing at an annualized rate of 8.5% for the same 35-year period. How it will do in a short period (like 1 year), I have no way of estimating.

      Of course, with the severe housing shortage in Santa Cruz (and more generally in California), it is likely that houses will continue to appreciate faster, as you have estimated, and it is almost certain that the appreciation will be much more than 1.8%/year.

      Comment by gasstationwithoutpumps — 2021 September 28 @ 17:56 | Reply

  2. I’ve been keeping my 45+ year old Kitchen Aid dishwasher going strong. I had to repair or unclog something every few years. The bottom door opening gasket holder just went bad and replacements are no longer available. So I slipped on a foam pipe insulator and it works fine. Fewer and fewer parts remain available. But we did give up on similarly vintaged washer and dryer.

    Comment by chaikens — 2021 September 28 @ 15:04 | Reply

    • My dishwasher is my second newest appliance (the water heater is newer), and I’ve only had to do one repair on it. My gas stove needs a new oven igniter every couple of years, but I’ve learned how to replace them myself, and it’s no big deal. I think that the next appliance to replace is the refrigerator. I was going to replace it a couple of years ago, but have not gotten around to it yet—it’s getting a bit rusty and the light doesn’t work, but it still keeps things cold.

      Comment by gasstationwithoutpumps — 2021 September 28 @ 17:59 | Reply


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