The United States Census Bureau reports home-ownership is down from 62% to 53% since 2009. It also reports that the average age for first-time homeowners increased from 31 to 38 years old. Some may argue that these changes are as a result of the 2008 housing market crisis but nothing could be further from the truth. These changes are solely the result of higher interest rates. As interest rates continue to rise more and more Americans choose to fore-go home-ownership. For these individuals, renting is the best alternative and proves to be more financially sound than purchasing.
Renting vs. Buying a home: The math of renting vs. buying a home. Challenging the notion that it is always better to buy.
Renters are at a greater financial advantage than homeowners. For example, when an individual rents a place to live, he or she may only be required to pay some type of security deposit. This security deposit, in most cases, is equal to the first month's rent. It is refunded when an individual vacant the property provided that he or she has meets all contractual obligations. This is not the case for buyers. Buyers using a conventional mortgage are required to have 20% of the purchase price as a down payment plus additional money to cover closing cost. The down payment and closing cost could easily be 50 times more than any security deposit renters are required to pay.
Another advantage to renting is renter are not required to pay maintenance or repairs cost unless the damage is directly caused by the renter. Maintenance and repairs are the responsibility of the homeowner. Maintenance and repair cost are the most expensive cost to homeowners followed by taxes. According to a report by the University of Illinois Extension, homeowners need to budget 1% to 2% of the purchase price of their home, each year, to cover the costs of home maintenance and repairs. Repairs on a 30-year mortgage at 1% to 2% of the purchase price could equal half the home's value by the end of the mortgage.
Renter also have more flexibility and mobility than owners. Renters are generally under a yearly contract. At the end of the period, he or she has the option to renew the contract or relocate with no penalty. Owners are at the mercy of the housing market and could take a substantial loss if he or she attempts to vacant the premises. Also, in most cases, mortgage lenders require buyers live in the property for the first three years of the mortgage.
These facts are irrefutable. From a financial standpoint, it is far better to rent than to own. Anyone that believes otherwise clearly does not understand the value of a dollars or how fragile the global economy is.
I still do not agree that renting is a better option, after 15 years of renting, a person still does not have his own house to resale. Yes, this true that rent is cheap in dollar amount but renting does not benefit in long run. even if a person does not like the location or had to spend money on maintenance, he still can sale the old house a at lose but can use that money to pay as a down payment for a new house,
ReplyDeleteIn certain circumstances, renting is optimal; say a person isn't going to be in a location for long; their job outlook is uncertain; they just got out of a bad relationship or marriage.
ReplyDeleteBut isn't the situation much more complicated than it just being about high interest rates? What caused those rates? Economic trends are an important thing to consider, as well as knowing that the economy is not a static entity--that multiple factors influence interest rates.
Also, one of the biggest problems was lax regulation, wasn't it? the "Conventional 20% down" was not being used when the federal government was trying to entice more renters to buy. Interest-only loans and ARMs were all over the place. And these loans were bet against by big banks--who bet against Americans to fail. This became a perfect storm for those in real estate and mortgage lending/brokering. Just look at those numbers that will come out soon that highlight the low numbers of mortgage loan applications during the shutdown.
I get the impression this is your "opposing points" post. Is it? Even if it is, you don't have to fully take the side of the opposition. Just showing their position is enough.
P.S. Thanks for the Rick Roll! I think you should have a caveat here that lets readers in on the opposing point. Those who don't read between the lines might be confused with this advice. Let the blog truly represent your position--you can make these points, sure. But don't be afraid to refute the ones that seem less plausible.