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Want to save money? Move downtown

If you want to save money these days, you have to move into the city. Crazy, but true.

By MSN Money Partner Jul 24, 2012 4:20PM

This post comes from Brett Arends at partner site SmartMoney.


SmartMoney on MSN MoneyMy wife and I thought about moving out of the city to cut our expenses. Then we ran the numbers and realized it made no sense.


Image: New York (© Tom Grill/Corbis)If you want to save money these days, you have to move into the city. Crazy, but true.


No wonder McKinsey & Co., the strategy consultant, recently produced a report predicting a new golden age for the American city. When I was growing up, the story of the American city was a sad one. The middle class had fled to the suburbs. Downtown was dying. But based on my math, people are going to be moving back.




Three reasons: Interest rates. Gas prices. And the Internet. Let me explain.


Sure, real estate outside the city looks cheaper. But then we'd have to buy two cars.


And while the cost of a car is going up, the cost of real estate has come down, thanks to the collapse in interest rates.


I did the math. (Post continues below.)

Thirty-year Treasury bond yields have now plummeted to 2.5%. The 10-year is down to 1.44%. You can thank the Federal Reserve, as well as the economic slump.


This is great news for a homeowner. We are in the process of refinancing a 30-year fixed-rate mortgage at 3.6%. The interest, of course, is deductible at the federal level. So after taxes, the rate, on a net basis, is less than 3%.


According to the American Automobile Association, the average car costs about $9,000 a year. That includes about $3,500 in depreciation, as well as $5,500 in fuel, insurance, maintenance and so on. It seems a little high to me. But it's hard to see how you could run a car for less than about $4,000 a year, including depreciation. Two cars: $8,000. This is lowballing it. And I think over the long term fuel costs are probably heading higher.


It produces some fascinating numbers. With current mortgage rates, $8,000 a year would pay the net interest on a $275,000 mortgage. In other words, in very crude numbers, if we moved out of the city we'd have to find a home for $275,000 less than our current place in order to break even.


The difference may not be quite that big. Let's say we spend about $2,000 a year on rental cars or Zipcars. That still leaves a gap of about $200,000. We'd need to save more than that in order to make the move work.


I mentioned the Internet. It's an ancillary factor. I grew up in the countryside. It's a very convenient life when you can drive everywhere. But the rise of online shopping has eliminated that disadvantage of urban living as well.

Naturally there are some complicating factors. The numbers only work if you itemize your taxes anyway: Those of us who live in high-income, high-cost states generally do. And there are other reasons to live in a city or the countryside. Many people will make their decisions based on quality of life.


But it's intriguing to realize that the sticker on the price of city real estate is misleading. It is about as cheap, or cheaper, than living outside the city.


More on SmartMoney and MSN Money:

Jul 24, 2012 5:43PM

There is nothing fundamentally different about student loans that make them different from any other loan and no reason for the bankruptcy laws to be applied the same. Further if the loans are not discharchable then why is there interest on the debt? The interest is to cover risk and as the law now stands there is no risk. Government is supposed to be non profit so why the interest? And why the interest on the interest since this can cause the debt to accelerate beyound the capacity to repay ever.


A cynical person would say that the education system is being setup to deny success to the poor, and working class. To make sure that even if you do succeed you won't succeed.


There is a solution to the problem that too many in America are not ready to wrap their heads around yet, UNIVERSAL EDUCATION. We are perfectly capable of educating everyone in this country who is capable and willing to be educated. We should at the very least provide for the best brightest to become doctors and engineers.

Jul 25, 2012 8:16PM

I guess it depends on the city. Large cities: I have visited Chicago and San Francisco and looked around. San Fran has no supermarkets in town. Chicago only has high end markets downtown. To meet any needs, one has to hop on a bus or train.


Living in a medium sized city, absolutely everything downtown closed up two decades ago leaving a lot of office spaces, exposition/concert venues, govt buildings and homeless missions. The city bus system here is woefully inadequate with runs ending at 6:30 pm and a taxi cab takes 90 minutes at least; cabs may not be hailed. The poor sprawl that developed made all the small discount places, grocery stores and most gas stations close up and leave the area leaving these residents with the need to hop on the bus system just to meet basic need for food. Some of the downtown area has been reclaimed for the bars, entertainment venues and high end shops but it still leaves the people who moved into the converted lofts and old high rise hotels driving to meet their basic needs.


Anyone interested in living near work and entertainment in a downtown area needs to impress upon their political representatives the need to encourage chain grocers and discount stores to reinvest in downtown areas again to keep this an affordable lifestyle alternative.

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