THE DEBUNKER: Dammit, it is not 48% cheaper to buy than rent in Philly

So another study of dubious provenance seems to say that it's 48% cheaper per square foot to buy an average house in Philly than to pay an average rent in Philly. Like, to the point where it's throwing money away to rent. 

This data comes from real-estate company Trulia. Though we usually disdain corporate studies on stuff that they've got a financial interest in, this is better than most in that it has a methodology and stuff, and lets the user explore the data rather than just stating a bunch of facts as truths. However, there's some weird stuff about this that doesn't quite work out.

The starting sliders for Philadelphia do indeed turn out the 48% figure everyone's mentioning, but their starting points seem a bit misplaced — the average rent is $1,600/month, which is fairly high-end for Philly, but the average list price for properties being $175,000 seemed extremely low. Fully invested in continuing to believe we haven't been just throwing money away for the last near-decade, we decided to look into this. And yes, came out feeling at least a little better, because there's tons of invisible costs of buying property that the methodology doesn't factor in, making for a much lower apparent average price of property.

What you can buy for $175,000 on Trulia is usually in one of four categories, all of which have a lot of invisible costs attached:

• a condo (which usually have very stiff fees that aren't counted in the equation)
• a house in need of significant repairs or renovation
• a house in a neighborhood where there are zero apartments that rent for as high as $1,600, whether that's because it's dangerous, very far away from Center City, whatever

While it sort of makes sense to set each thing at the average price of stuff listed on Trulia, there's a flaw in this logic — there's tons of houses for sale priced very low because they're in need of renovation or just shells, whereas everyplace listed for rent needs to be up to code. The invisible $30,000 that house-buyers are agreeing to spend to renovate 

But don't take my word for it. Just go look at Trulia's listings for what you can rent for $1,600 and what you can buy for $175,000, and judge for yourself whether a person who would rent one would be likely to buy the other. 

Rent for $1,600: 

• An 865-square-foot two-bedroom apartment at the Piazza
• A small 1-bedroom house in Center City
• A 1000-square-foot 2-bedroom house in Fairmount
• A large 4-bedroom apartment in Powelton
• A 1450-square-foot 3-bedroom house in the Northeast with a garage, deck and yard

Buy for ~$175,000:

• A 461-square-foot studio on Rittenhouse Square, which comes with $487 a month in condo fees.
• A 720-square-foot 2-bedroom house sort of near SugarHouse that is right next to an overpass and being sold as-is
• A 1,042-square-foot 3-bedroom house near 17th below Snyder being sold as-is 
• A shell in Bella Vista
• A 1,260-square-foot townhouse with a yard next to the Northeast airport
• A 1065-square-foot pre-foreclosure home in Fishtown

Obviously, the costs of fixing up an as-is place (or tearing down a shell and building a new house) are getting lost in this equation. Same with condo fees — while they're not always as steep as for that Rittenhouse studio, they're usually at least a couple hundred a month. Both of these are significantly dragging down Trulia's average home price to a point where it seems like it would be much smarter to buy. Add 'em back in, and the numbers even out a bit.

Foreclosure prices are also screwing things up. There's tons of foreclosed and pre-foreclosed properties listed for extremely cheap — in a sort of macabre move, a lot of properties seem to have been automatically listed at an estimated market value after the current owner/residents missed a few mortgage payments, and you're cautioned NOT TO GO ASK TO SEE THE PLACE.

But their apparent inexpensiveness is both because it's usually a starting market-value estimate for an eventual auction, and also because buying a foreclosed property is sort of like bidding for cheap airline tickets on Priceline. As in: You don't get all the relevant information beforehand, and part of the price is the acceptance of the risk of buying the house equivalent of a red-eye with four layovers. Don't take it from me, ask Trulia (from their "Why you should, or shouldn't, buy a foreclosure"):

Foreclosures may need serious and costly repair. The previous owner might not have been able to afford fixes for the property and may have allowed it to fall into disrepair.

Foreclosures are often vandalized and looted; it's not uncommon to find major appliances missing, holes kicked in the walls and other vandalism.

Foreclosures tend to sit vacant for periods of time, which causes major maintenance issues. If a home is not maintained, its pipes could freeze, vermin and bugs could settle in and mold could grow.

You need to do your research -- a foreclosure can have liens attached to it. You may find yourself having to pay costly old debts associated with the property.

Foreclosures often are sold as is and banks often aren't interested in making or footing the bill for repairs.

At times, foreclosure buyers have to start eviction proceedings and pay legal fees to get the previous tenants/owners out of the home.

Purchasing a home from a lender can be a lengthy and time-consuming process that's full of red tape.

Trulia factors in stuff like utilities and property taxes, but they don't include expenses that you don't have to worry about as a renter — replacing the hot water heater, for example, or fixing the roof, which is a regular and significant expense that you're supposed to rule-of-thumb at about 1% of the total property value per year. 

Anyway, in conclusion, yes: It probably is cheaper and more financially smart to own a house than to rent. We admit it. But certainly not 48% cheaper, though, so perma-renters should feel no need to slam their heads against the desk if living through the housing bubble has left them terminally wary of mortgages. If you count condo fees and crank the house-price slider up to $250,000-$300,000, which is probably more realistic for what someone paying $1600 in rent would want to buy, renting doesn't seem so suicidally stupid anymore.