Should you rent or purchase a home?
Conventional wisdom has always been in favor of people owing their own homes. This has been the cornerstone of advice to Americans since at least the end of World War II, when for the first time homeownership became a reality for the middle class. But we’ve had a big game changer during the last couple of years, one that has the potential of changing our conventional way of thinking forever, not to mention our wisdom.
When I started researching this piece, I thought it would be easy to throw some numbers into one of the on line renting vs. owning calculators and come up with dollar values proving the case one way or the other. But like everything that has to do with housing in the United States, the numbers were all over the place. Garbage in garbage out has never been truer than when working with on line calculators.
One published by the New York Times concluded that buying is better than renting after six years assuming a 1 percent appreciation rate and 3 percent annual rent increase rate. Another one on interest.com concluded that a home purchase will breakeven after 30 years assuming a 3 percent appreciation rate and an income tax rate of 25 percent. And Ginnie Mae told me that after 30 years, if I purchased a $300,000 house with a 3 percent appreciation rate, 20 percent down and 1 percent annual property taxes vs. paying $1,000 a month rent for 30 years, I would be ahead a little over $88,000. Are you starting to see my point here? After I took all this hard earned data and threw it in the waste paper basket, I took another tack.
We all know the benefits of owning a home. You have total control and autonomy over your living arrangement, you have at least the hope of acquiring some appreciation, part of your monthly payment is going to buy down your mortgage functioning like a forced savings, and, of course, there are tax benefits.
But what about the disadvantages like lack of flexibility, which could be a real drawback when it comes to changing employment or careers. You’re also responsible for all of the repairs, maintenance and improvements. Insurance is higher than renting, especially in Florida, property taxes go up and the really big thing as we know is that home prices can go down.
I think where you are in life is also a major consideration in owning vs. renting. Young people just starting jobs probably need the flexibility of renting. Conversely, older individuals, who no longer have the need to build equity, and may not be willing to take on the work and risks of homeownership, are probably better off renting.
Thankfully, even if some Americans start to trend back to renting because of our financial crisis and an aging population, there are still plenty of us who still want the pride associated with home ownership. Whether we own our own homes or rent, someone still has to own the property, and in today’s real estate market there are a lot of good opportunities regardless of the direction you choose.
Renting is just like throwing your money away was one of the tenets of those in favor of owning rather than renting. However, that one-size fits all advice may not be valid in our individualized and changing society. As we know now, conventional wisdom in the housing industry is out the window, right along with sub-prime mortgages.