Owning a Home

Everyone realizes that home ownership is a very big financial step.  And if you need to borrow money to buy a home, you should also understand the serious financial commitment you've made to your mortgage company.  But to really appreciate the total cost of owning a home you need to look beyond your mortgage.

In this article we're going to use information from surveys conducted by the Census Bureau and the Bureau of Labor Statistics to examine the average cost of home ownership.  First we'll quickly discuss the two survey methods themselves, and then we'll take a look at some of the statistics relating to the cost of owning a home.  Finally, we'll finish up by summarizing all of the information we've found to help you figure out exactly what it costs to own a home.

Home Ownership Surveys

Each year the US Census Bureau conducts what they call the American Housing Survey.  The survey is conducted to provide up-to-date information on certain aspects of home ownership to the U.S. Department of Housing and Urban Development (HUD).  The results of the survey are based on the responses from 56,000 participants.

The second survey we examined is sponsored by the Bureau of Labor Statistics and it's called the annual report on Consumer Expenditures.  The survey, which is also conducted by the U.S. Census Bureau, consists of two components:

• Recordkeeping Survey - this is a diary that is used by survey participants to record their daily expenditures.
• Interview Survey - this involves five telephone interviews conducted at three-month intervals.

The results of this second survey are based on 15,000 recordkeeping diaries and 30,000 interviews.  And while there is certainly some homeownership data overlap between these two studies, there is also information that is unique to each survey.

Average Home Characteristics

Using the 2005 American Housing Survey we're able to draw some conclusions as to what constitutes an average American home.  More accurately, the report tells us about the "median" home.  The median is the mid point in the data, meaning half the American homes have more, and half have less, than the midpoint values below.

Typical American Home

Given the above definition, the following are characteristics of the typical American home:

• Built in 1974 - meaning the home was around 30 years old
• Two Stories High
• Six Rooms
• Three Bedrooms
• 1.5 - 2.0 Bathrooms
• 1,858 Square Feet
• 0.38 Acres

There really shouldn't be any surprises when looking at the above information.  Most of us would view this housing information as that of a modestly-sized home. And now that we have a good feel for size of typical home, we can start to talk about the costs associated with owing a home.

Monthly Home Expenditures

The following data are the median costs to own a home - again using information from the American Housing Survey.  Remember that the median means half the households will spend more than the amounts below, and half of the households will spend less than these amounts.

• Real Estate Taxes - $127 per month or $1,524 per year
• Mortgage Payments - $767 (principal and interest) per month or $9,204 per year
• Property Insurance - $52 per month or $624 per year
• Electricity - $71 per month or $852 per year
• Natural Gas - $71 per month or $852 per year
• Fuel Oil - $104 per month or $1,248 per year
• Drinking Water - $35 per month or $420 per year
• Trash / Garbage Disposal - $19 per month or $228 per year
• Routine Maintenance - $27 per month or $324 per year

Finally, and to put things in perspective, we'd like to point out that this typical home cost $165,344.  Adding the above numbers we can conclude that owning a home costs the average American $1,169 per month or $14,028 each year.

Consumer Expenditures

The second set of data we examined comes from the Bureau of Labor Statistic's 2005 report on Consumer Expenditures (published February 2007).  As you recall, this survey relies on telephone interviews and written records of expenses.  For purposes of evaluating the cost to own a home, we'll be looking at the following types of expenses:

• Housekeeping Supplies and Services - which includes bathroom tissue, brooms, laundry and cleaning detergents, light bulbs, maid service, mops, paper towels, and sponges.
• Housewares and Small Household Appliances - such as blenders, coffee makers, cooking utensils, dinnerware, glassware, irons, utensils, pots and pans, telephones, and toasters.
• Home Furnishings - such as art work, clocks, curtains, lamps, picture frames, pillows, plants, refrigerators, rugs, sheets, sofas, stoves, table cloths, tables, towels and vases.
• Housing Expenses - including cable TV, electricity, garbage removal, heating/cooling, insurance, maintenance fees, mortgage payments, property taxes, rent, and telephone charges.
• Home Maintenance - such as hardware, lawn supplies, hand tools, improvement and repair equipment, lawn / garden equipment, nails, power tools, screws, supplies, and services.

The corresponding monthly and annual costs for the above items as found in this study, and which pertain to the cost of owning a home, include:

• Utilities, Fuels, and Public Services - $265 per month or $3,183 per year
• Household Operations - $66.75 per month or $801 per year
• Household Supplies - $50.92 per month or $611 per year
• House Furnishing and Equipment $147.25 per month or $1,767 per year
• Housing - $1,263.97 per month or $15,167 per year

Cost of Owning a Home

Based on the survey results above, what conclusions can we draw concerning the cost of owning a home?  To answer this question, we need to see how the results of the two surveys compare.

The Consumer Expenditures survey is clearly a more comprehensive study - especially since it relies on a written record of expenditures and the span of household expenses is more wide-ranging.  Overall, the claim would be that it costs around $21,500 per year or $1,792 per month to own a home.

From the American Housing Survey we initially concluded that it cost around $14,000 a year to own a home.  But that result did not include some of the expenses found in the Consumer Expenditures survey such as home furnishings, household supplies, operating expenses, and some of the utilities.  If we were to add these values to the American Housing Survey results we'd conclude that the cost to own a home would be around $18,700 per year or $1,558 per month.

Renting versus Buying a Home

When interpreting these results, be careful about comparing the cost of owning a home above to the cost of renting a home.  The values mentioned earlier go beyond the simple rent payment you'll be making each month if you decide to rent or lease a home or an apartment.

If you're trying to decide between buying and renting a home, then  we've got an online calculator that can help.  Our Rent versus Buy a Home calculator takes into consideration not only the expenses associated with these two options, but also considers increase in rent over the years along the appreciation in a home's value in the future.

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