Recently there have been numerous articles written stating that buying a home no longer makes economic sense; that it is now more prudent to rent. Of course the reason for these articles is the current housing slump and the dramatic decreases we have seen in home prices.
While articles promoting the rental concept present some compelling arguments to support their position, the true answer is much more complex. A recent article by Jack Hough in Yahoo! Real Estate, “5 Reasons Renting Still Beats Buying,” presented the following points:
1. Houses produce lousy returns, while stocks produce good ones.
2. House prices have further to fall.
3. Many houses for sale today seem designed to waste money.
4. Big houses are targets for future taxes.
5. Neighborhoods are changing in unpredictable ways.
Mr. Hough stated at the beginning of his article that he was a renter; therefore he’s forced to justify his position by presenting only one side of the story. On the other hand, I’m an owner; and for most of my adulthood have been one. Of course, I’m biased towards owning.
What everyone must understand is that neither position fits all situations. There are some who should never own a home, but there are many for whom home ownership provides both financial and emotional rewards. I will address Mr. Hough’s 5 points as I see them.
1. Houses can produce amazing returns, especially when one considers they are a leveraged purchase; and though I can only show the results from my own experience, I present those numbers for consideration. Of the 5 homes I have owned that I purchased, my annual return on investment ranged from a low of 20% to a high of 90%; and of the 4 homes I built that I lived in, I earned as much as 125% return on my investment. Those are far from lousy returns. Today’s market demands serious research prior to purchasing, but there is still great value for buyers who do their homework.
2. There are areas where home prices will fall further; however, even in those areas, shrewd purchases should increase over time at a rate significantly above inflation.
3. Of course there are homes built today that are larger than a family needs, but that has nothing to do with the central point of the article. Home buyers should always make prudent purchases, should buy within their means, and should consider the operating costs of any home under consideration. Many of today’s homes are built with much higher “green” standards than are apartments.
4. Here again, the author seems to be missing the point. It’s not so much a home that may be a target for future taxes as may be the income of the owner. No one knows how our recession and the funding of the recovery will affect future taxes, but I doubt that houses will be any more a target than will be corporations or wealthy individuals.
5. Finally, Mr. Hough seemed to have run out of points, but he needed a fifth so he added one that makes no sense towards his premise. Yes, neighborhoods are changing; so is everything else. As Realtors® point out, location is always critical to a purchase, but it’s only one of many considerations. A professional and knowledgeable Realtor should be familiar with neighborhood trends and the potential for changes, and can steer buyers away from areas that have negative potential.
Of course, no one should purchase a home without giving careful thought to the full implications of how their personal and financial picture will be affected. To do so “just wouldn’t be prudent.”
For the latest information on home repair, buying, selling, building, or remodeling, visit, www.TheHousingGuru.com
