June 2, 2011
Is Buying Really for Chumps?
Slate argues that, "the American economy is making a significant shift from buying to renting, and that may ultimately be good news." More specifically, the piece makes the case that:
Contrary to the housing-bubble dogma that a mortgaged apartment or house provides a pathway straight to the American Dream—and contrary to the tax code, which encourages buyers and discourages renters with a huge break for mortgage interest—renting is better than owning for many Americans. Indeed, dozens of recent studies have shown that, excepting the go-go bubble years, houses tend not to make very good investments at all: A prospective homebuyer would have made more money taking her down payment, parking it in inflation-adjusted Treasury bonds, and renting.
This is all well and good (and true), but the author ignores a lot of the other, non-economic benefits of homeownership. First, there's the security of knowing that, as long as you make the payment, no one can take the place away from you. The landlord can't turn your dwelling into condos at the end of the year. Second, there are real autonomy benefits to home ownership. You have the freedom (and incentive) to install expensive window treatments, granite countertops, and the hot tub of your dreams. Finally, other than wearing sweater-vests, there's just nothing else in our national culture that signals a person is mature, and trustworthy, and respectable like owning a home.
A house may not be a good investment, but it is a terrific consumption good.
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You make good points defending the merits of buying versus renting, and I agree with those. However, as the owner of a house in Indianapolis, and the renter of a house in Winston-Salem, I'm coming down on the renter's side, at least in this economy. We are gaining a great value on the house that we are renting in Winston-Salem -- if we purchased it, the mortgage payment (plus real estate taxes, which we do not pay) would be significantly more than our rental payment. Plus, we've got that pesky house in Indianapolis, which is appraising so low, I can't bring myself to sell it until the market picks back up. Instead, I'm renting it out for an amount that covers my mortgage payment. I doubt my family's experience is typical, but I think it points to two benefits of renting -- 1) the security you mention with buying brings a certain level of inflexibility, particularly when a market is in decline; and 2) in a down market like this, renters can likely get a good value for their money, while retaining flexibility (albeit giving up the autonomy benefits you mention).
Anyone interested in a lovely home in Indianapolis?
Posted by: Tanya Marsh | Jun 2, 2011 5:53:18 AM
My ongoing concern is about the qualtiy of our public conversation about "buy vs rent." We've had at least a decade of overblown rhetoric suggesting that everyone who is rational and responsible SHOULD buy, despite the fact that various households can have a wide range of objective housing needs. The article cited does NOT engage in overblown counter-rhetoric and does NOT say, or even suggest, that "buyers are chumps." Rather it's a very balanced and thoughtful piece. It should be recognized as such.
Posted by: Tim Iglesias | Jun 5, 2011 12:00:31 PM
Thanks for your insight and rebuttal to Slate's argument. I recently read a perspective in Inman (real estate blog) that you may find particularly interesting. The author is suggesting incentivizing the purchase of homes in Florida as a result of the rising cost of renting. You can find full article here: http://bit.ly/kTH0f0
Posted by: Michael | Jun 5, 2011 12:35:34 PM
Another meaningful virtue of owning a home is forced savings in a medium protected from creditors.
Renting, meanwhile offers its most significant value to people who have subprime credit. They are essentially borrowing their landlord's prime credit rating, since mortgage rates paid by landlords rather than tenants drive free market rental property rent rates. Renting is also particularly valuable to those with irregular incomes, because the downside cost of not being able to make a rent payment is much lower than the downside cost of not being able to make a mortgage payment on a home with any significant equity.
An interesting hybrid case is the rent controlled apartment. The conventional analysis views this as price fixing that disrupts a free rental market, but another way to look at a rent controlled apartment is as a close equivalent to a condominium purchased with a mortgage developed before the condominium form of ownership took hold in the 1960s. Both allow someone to live in part of a multi-unit building at a fixed monthly expense that doesn't increase with the market or inflation.
Posted by: ohwilleke | Jun 8, 2011 1:51:07 PM
Here's one we did called Renting is for Chumps.
Posted by: matt | Sep 19, 2011 9:14:03 AM