For a long time, consumers believed that it was almost always better to buy a house rather than to rent one. When you purchase your very own residence, you build equity in an asset. For a long time, the price of a mortgage was close to the relative value of renting, and you also benefited from the value of your home increasing as well. The same cannot be said after the housing crisis of 2008-2009 though. The tax advantages of buying a home are also far greater than what you receive from just renting. The complete paradigm of housing costs have shifted, and buying a home is no longer a slam dunk greater investment relative to renting. The advantage of renting might actually be gaining on home ownership.
How Long You Stay. You need to live in your home now more than ever to recoup your investment and the monumental costs associated with buying a home. In the past, you would have only have a stay in your home a year or two in order to recoup your closing costs and fees thanks to an ever increasing appreciation of your home’s value. That cannot is not the case anymore with value dipping around the country. You need to be able to stay a much longer timeframe in your new home in order to recoup these costs in today’s still turbulent housing market. That is one reason that renting has become so popular as of late.
Lack of Appreciation. The average home lost 13% of its value during the current housing crisis. Homeowners can no longer bank on the value of their homes appreciating each and every year. Many homeowners are lucky if their homes have stayed constant in value. Because of a lack of home value appreciation, home equity lines of credit (HELOC) have dried up. Many homeowners were continually tapping their increasing equity and trading up in homes. Now, they hit a snag when they could not roll their high interest ARM mortgages into a new loan thanks to devaluation of their homes and the credit crisis.
Other Costs. Property taxes, maintenance, insurance, landscaping, upgrades, and other costs add to your total mortgage bill if you are the homeowner. The same is not true if you are just a renter. The upkeep of the property is not your problem. Your insurance as a renter is also a lot lower than the actual homeowner’s. The burden of liability and costs are definitely on the owner of the home instead of the renter. There is something nice and comforting about only having to call the landlord about a leaky sink rather than actually having to crawl under the cabinets yourself.
We must rethink the notion that buying a home is automatically a better option than renting. That may not be the case in today’s housing market. The paradigms have changed thanks to the housing market and credit crisis. The old way of thinking about homeownership is not consistent with today’s market, and renters and homeowners must adapt to this new playing field or risk potentially losing a lot of money. There is a visible shift in the housing market in favor of renters.
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Buying a house has never automatically been better than renting. But, over a 10+ year period it usually is and it will continue to be. It’s not accurate to look at recent statistics and say houses won’t appreciate, because this crash is no different than the crashes in the ’80s and ’90s. Housing is cyclical, just like the stock market. It’s tied to income and demand. Housing will appreciate in most areas, except possibly the rust belt. Then, if housing becomes too inflated, it will crash again.
The real benefit of owning over renting comes after many years. Your mortgage stays the same while everyone else’s rent goes up. After 13 years, the mortgage on my nice big house is now way less than the rent on my dinky old appartment. And, after I pay off my house in another 5-6 years, I will only have to pay for insurance, maintenance and taxes. Most people who compare renting versus owning, haven’t thought that far ahead. That’s a big mistake, because long term, it’s a way better deal to own. Did I mention the tax advantages? It’s worth fixing your own plumbing.
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