In an editorial responding to a question from a CNN Money reader that asked…
NEW YORK (CNNMoney) — For the last three years, my husband and I have been renting a house. But I would rather buy than throw my money away on rent. Still, even though we have about $120,000 in savings, great credit and no debt, my husband is reluctant. The job he’s had the past two years took 15 months to find, and it pays a lot less than his previous job. He’s afraid buying now isn’t a good idea because of the shaky economy. What do you think: Should we buy or continue renting? — Jean J.
Contributing writer, Walter Updegrave, responded…
First things first, I want to dispel the belief that you are throwing money away on rent.
This is a self-serving notion real estate agents often spout that not only isn’t true, but isn’t a basis for making a rational decision when it comes to buying versus renting.
Fact is, when you rent, you are buying. You’re buying a service: the use of a house for a specified period of time. And as long as the rent you’re paying is in line with what others are paying for comparable digs, then you’re getting that service at the market rate.
Granted, you don’t have some of the potential plusses of ownership, such as seeing the value of your home climb over the years. But renting has other advantages. You can move more easily, and you’re not on the hook for real estate taxes and upkeep. And the money that would have gone into your house can be spent on other things or go into other assets.
Here, Mr. Updegrave claims that the idea of home ownership is an agenda pushed by “self-serving real estate agents.” However, this is an extreme distortion of the facts. If Mr. Updegrave has an issue with the notion of “throwing money away on rent,” he goes on to admit that in fact you don’t have the advantages you would have should you have used your cash to purchase a home. So, in fact, the issue is not perhaps an either/or proposition, but rather a question of where your resources are best allocated.
Any professional Realtor will tell you that not everyone is in an optimal position to buy, but should one be in such a position, buying a home continues to be a solid investment, despite all the nay-saying and barrage of dismal news the media projects at us daily. One of the core institutions in our country is the ideal of home ownership; rough economies and uncertain times have done little to alter the foundation of this institution in reality, despite the doomsday rhetoric.
And if you’re looking for more proof, take it from some of our country’s top economic advisers; for instance, Warren Buffett says that his home was the third best investment he ever made (see article). The powerful lobby, NAR, says that: “The vast majority of both home owners and renters say that owning a home is a smart decision over the long term. Even in today’s challenging economy, 95% of owners and 72% of renters believe that over a period of several years, it makes more sense to own a home” (see article). In addition, Inman news points to “the results of a biannual survey, released this week by real estate search and marketing portal Trulia, [that] found that 80 percent of homeowners plan to buy another home, and that most survey participants view homeownership, and placing money in a 401(k) or other retirement account, as the best long-term investments” (see article). This data speaks also to the fact that with the current market trends, rents are skyrocketing while the cost of purchasing a home is still in decline.
Underlying the arguments for home ownership is also a quality of life issue. Buffett says that: “For the $31,500 I paid for our house, my family and I gained 52 years of terrific memories with more to come” (see article). As well, “An overwhelming majority of home owners are happy with their decision to own a home. A full 93% of owners surveyed would buy again” (see article). In the end, then, we have not only the support of financial data to show us that buying a home, when done correctly, is a solid investing decision but also the question of affect, as we are so often reminded; indeed home is where the heart is, there’s no place like home.
After the past few years, buying or renting can quickly turn into a fear-based decision; the news tells us constantly about crumbling markets, downturns and double dips. But when it comes to what is for most people the largest financial investments of their lives, it’s best to delve deeper, past the rhetoric, and look at the facts. The facts are that buying a home today is a far more accessible and sensible option than it has been in decades, what with inventories, prices and available interest rates, and that such a financial environment is the perfect opportunity to make a prudent investment in both your financial future as well as your emotional one.
To find out whether you should be buying or renting, check out this interactive chart.