Long before I got into the real estate business I had always heard that is was better to buy rather than rent a home.  With the market across the country having it’s up and downs over the past couple of years many people are questioning that philosophy. 

 

I recently read an article that tried to answer that very question.   In the article two researchers, Eli Breacha and Ken H. Johnson, compare the rent v. buy question to see which makes more since financially.  In their paper “Lessons from Over 30 Years Rent Decisions: Is the American Dream Always Wise” they discuss that the social benefits of homeownership cannot be questioned.  The researchers found that renting, along with a sound investment strategy of reinvesting the difference, made renters better off.  Having said that, this strategy is dependent on disciplined renters always saving the difference from renting and investing it. Historically, people struggle to actually reinvest the savings on a consistent basis which brings into question whether renting is the better option long term.

"In addition, renters have only a fraction of the net wealth of owners. Near the peak of the housing bubble in 2007, the median net wealth of homeowners was $234,600—about 46 times the $5,100 median for renters. Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters." 

They go on to say that with historically low mortgage rates and a low rent to price ratio the conditions favor future home buyers. 

 

What does all this mean to potential home buyers?  Two researchers set out to prove that renting is better than buying and found just the opposite was true. 

 

 

 

 

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http://www.fma.org/NY/Papers/Lessons_from_30_years_of_Buy_vs_Rent_Decisions.pdf

 

http://kcmblog.com/2011/05/11/homeownership-building-family-wealth 

 

Alan Bayle

The Todd Tramonte Home Selling Team