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Methodology
C.A.R. looks at the monthly mortgage on a single family detached home based on the C.A.R. median price and the Real Facts average rent in each respective area for the first quarter of 2014. The monthly costs of home ownership include the mortgage payment, insurance and taxes. The mortgage interest and tax deduction savings are subtracted from the cost of ownership. The monthly costs of renting include the rent payment and renters’ insurance.

Assumptions
• Owners and renters live in same residence for 7 years.
• Income tax rate: 34.3% (25% federal plus 9.3% CA income tax bracket) based on annual household income of $87,698 for married couple filing jointly. (Source: C.A.R.)
 • Inflation rate: -1.5% (Source: U.S. Bureau of Labor Statistics)

Homeowner
• Have a 20% down payment
• Median price, loan amount, mortgage interest rate and monthly payment (Source: C.A.R.)
• Term: 30 years
• MID & property tax deduction savings calculated based on 30-year amortization schedule. Average of first seven years was taken.
• Property tax rate: 1% the first year and increases by 2% annually
• Annual home insurance cost: 0.38%
• Average annual spending on home improvements & repairs: $2,370 (Source: Harvard JCHS)
• Investment appreciation calculation
     o Average annual (tax-free) home price appreciation rate: 5.3% (Source: S&P/Case-Shiller)
     o Present value of the accrued interest on median price over 7 years

Renter
• Security deposit: $1,700, average California monthly rent (Source: RealFacts)
• Monthly payment annual rent increase:

Area

% Inc

Avg Rent

Inland Empire

6.9%

$1,246

Los Angeles

7.8%

$1,991

Oakland MSA

13.8%

$1,947

Orange County

6.2%

$1,807

Sacramento

8.3%

$1,101

San Diego

7.5%

$1,653

San Francisco

13.9%

$2,995

Santa Clara

11.8%

$2,457

California

            9.5%

         $1,790

• Average of present value of accrued interest on starting rent over 7 years
• Monthly renter insurance cost: $22.5 (Source: Cost Helper)
• Investment appreciation calculation : 11.8% (Source: DJIA from FRED)
     o Investment = home down payment + security deposit
     o Capital gains tax rate: 15%
     o Present value of accrued interest on down payment and security deposit sum over 7 years


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