The forgotten costs of home-buying add up
There’s no doubt that buying a house is an expensive proposition. Anybody who goes into the process thinking otherwise is in for a rude awakening.
Even if the house is a bargain, you’re still paying big bucks — likely the biggest purchase of your life. And if you’re not paying cash, the interest can run into the tens or even hundreds of thousands of dollars over the life of the loan.
Then there are those heady closing costs, which run anywhere from 3 percent to 5 percent of the price of the house. These are charges like the recording fees and document stamps that local governments charge every time the house changes hands, plus those pesky lender charges for services such as appraisals and land surveys.
Next comes another round of what many describe as “hidden expenses.” They’re considered hidden because buyers tend to focus on the sticker price of the house — or perhaps even the monthly mortgage payment — and forget about other recurring costs until they get to the closing table or a month or two later.
These costs include property taxes, homeowner’s insurance, flood insurance, homeowner’s association fees and, of course, utilities. According to Zillow, these can add up to $9,000 annually to your household budget.
But wait! You’re not done yet. You still have your moving expenses to think about. It costs more to hire a moving company than rent a van; consider offering a case of a favorite beverage to your buddies in exchange for helping with the move.
Either way, though, you’ll absorb some costs that most people don’t think about until they have to. And while you’re at it, don’t forget to budget for setting up your utilities: water, power, cable, internet and more. Many utilities require first-timers to put up big deposits to open accounts.
Now you’ll have to turn your new house into a home. And according to new research from the National Association of Home Builders (NAHB), that means another round of spending for appliances, furnishings and alterations and repairs. If you are building a new house, figure on spending $10,601 in your first year of ownership on these items. If moving into an existing house, you’ll lay out a little less: $8,212. (This compares to only $4,122 spent annually on appliances, furnishings, etc. by people who are not moving at all.)
The NAHB came up with these numbers by perusing data from the Department of Labor Statistics’ consumer expenditure survey.
Not surprisingly, buyers of new houses outspend those buying existing houses when it comes to furnishings. They spend five times more money on things like living room chairs and tables, and nine times more on dining room and kitchen furniture.
Window coverings are another big spending category. And here, new-house buyers shell out four times more than existing homebuyers. But the most expensive item is a sofa, for which newhouse buyers spend 60 percent more than existing-house buyers.
But what is puzzling is that newhouse buyers also outspend others when it comes to appliances, and spend almost as much on alterations and repairs. Don’t most new houses come with appliances already installed? And doesn’t “new” suggest that no alterations or repairs are necessary, since the house has never been occupied?
For the most part, yes, according to a survey by the Housing Innovation Research Labs, which found that virtually all new homes come with cooking stoves, ranges or ovens. But two-thirds of the houses built in 2015, the latest year for which data is available, had no washers or dryers, and 36 percent had no fridge.
Another head-scratcher is that existing-house buyers shell out only $250 more on repairs and alterations during the first year of ownership than new-house buyers.
As it turns out, buyers of new homes tend to spend their money outside, on things like landscaping, a new driveway or walk, or fences. On the other hand, existing-house buyers put their cash into kitchen and bath remodeling, new heating and air conditioning systems, security systems and flooring — all items new buyers rarely spend a dime on in that first year.
Meanwhile, a separate study published by the National Bureau of Economic Research (NBER) puts another twist on the homebuyer spending spree. It says buyers — both new and existing — burn through “only” $5,000 on top of the purchase price to turn their newfound abodes into their own personalized residences.
This study analyzed spending by 70,000 households from 2001 to 2013, as well as building permits for some 9 million properties.
That the study period included the most recent recession, when such spending dropped off the table, accounts, in part, for the roughly $5,000 difference between the NAHB study and that of NBER researchers Efraim Benmelech, Adam Guren and Brian Melzer. But there is no further explanation.
Another interesting point in the NBER study: Home buyers started to increase their furnishings and renovation spending three months before closing. It peaked during the first month afterward, and started to decline slowly as time went by.
Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.