Revisiting rent vs buy

By Felix Salmon
April 21, 2010
David Leonhardt today revists the great rent vs buy debate -- something I was talking about on All Things Considered just this weekend. He's also updated the excellent NYT rent vs buy calculator, which he uses to agree with Dean Baker that the point at which it makes more sense to buy than to rent is probably closer to 15 than to 20, if you're looking at the ratio of house price to alternative annual rent.

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David Leonhardt today revisits the great rent vs buy debate — something I was talking about on All Things Considered just this weekend. He’s also updated the excellent NYT rent vs buy calculator, which he uses to agree with Dean Baker that the point at which it makes more sense to buy than to rent is probably closer to 15 than to 20, if you’re looking at the ratio of house price to alternative annual rent.

This all makes sense to me — but at the same time I’d still be tread warily if I were buying a place right now. For one thing, it’s worth avoiding the housing market between now and the end of the month, as would-be home buyers scramble to sign a contract before the federal tax credit of up to $8,000 expires. That’s bound to push prices up a little at the margin, and there’s no point getting caught up in the frenzy. If you need the tax credit to justify buying a house, then you shouldn’t buy that house.

More generally, Leonhardt seems to assume we’ve had all that we’re going to get, when it comes to house-price corrections. Check out his assumptions in his blog entry:

Among other things, I assumed rents and house prices would both increase 2 percent a year — along with inflation — and a mortgage rate of 5.25 percent.

The mortgage rate is reasonable — indeed, it might even be lower than that right now, although it does seem to be bouncing around quite violently, for reasons I don’t understand. But if you plug in zero appreciation for both rents and house prices, then in Leonhardt’s example you never get into positive territory, and level off with a loss of more than $5,000 on the house.

It’s hard to imagine a world where rents and house prices never go up — but we might well be entering just such a world. I rehearsed many of the arguments a couple of weeks ago, and I shan’t repeat them here — interest rates are low and rising; the government is artificially propping up the market; prices need to continue to fall just to revert to their long-term mean. But when it comes to rent vs buy calculations, the point is that you can no longer safely assume that rents will always go up. They might not have risen as much as prices during the bubble, but they did outpace inflation, and it does make conceptual sense that if house prices aren’t rising then there’s no real reason for rents to do so either.

My feeling is that house prices are going to fall in real terms — that they won’t keep pace with inflation — for the best part of this decade. And in that environment, buying a house is really not that smart, especially given the opportunity costs associated with doing so. Leonhardt’s calculator puts those costs, for his hypothetical $384,000 house with a 20% down payment, at $3,830 a year — 5% of the down payment. But in reality the opportunity costs are much greater than just the return that you would get on that money if you invested it. Renting gives you much more agility and mobility than if you tie yourself down by buying a place which might be quite hard to sell in a pinch. And having $76,800 in cash can come in extremely handy in many circumstances. For one thing, if say you’re laid off, it can pay the rent for a months if not years; if you’ve already used that money for a down payment, then you can’t use it again to pay the mortgage on your house.

So while Leonhardt is right that in much of the country price-to-rent ratios have come down to their historical mean, that’s not necessarily a good reason to buy. It would be more accurate to say that one of the many good reasons not to buy has gone away.

47 comments

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Felix, you have made a massive assumption that is almost certainly just plain wrong, namely that house prices will not go up.

Most experts I am aware of see no way out of massive government debt except to inflate, long term. In fact, where I live in Rockville, MD house prices are already rising again and the house next door surpassed what I paid two years ago. And the price / rent ratio is in the mid teens here.

If you apply the same inflation to rents and house prices and you choose some meaningful long term inflation like 5 percent, todays low interest rates make buying a no-brainer in most places in the country after not very many years.

Over the last 80 years the fed has consistently diminished the value of money and they are laying the groundwork for more inflation.

The calculator is rigged!! One percent house inflation over 30 years? Look:
(1) America’s pop is growing fast. Demographics drives housing demand above all else.
(2) Unlike greece we have an escape hatch, monetization of our debt. It is certain that we will resort to that.

We are diametrically opposite to Japan and we should not look at their real estate. Why?
(1) They have had a collapse in household formation. We have the opposite.
(2) They have had huge savings and trade surpluses. We have the opposite, leading them to deflation and us to future inflation.
(3) Their real estate bubble was to our real estate bubble as Mount Everest is to a molehill.

Long term, house prices must rise with inflation. It is a mathematical truism.

Posted by DanHess | Report as abusive

FYI, that calculator uses an unreasonably low marginal tax rate (20%), and, therefore, it significantly underestimates tax deduction effects of buying.

In New York, New Jersey, and California, most prospective homebuyers have 34% or 37% marginal tax rates.

Posted by Nameless | Report as abusive

“Long term, house prices must rise with inflation. It is a mathematical truism.”

Did you ever look at houses in Buffalo, Syracuse or anyplace else on the Erie Canal? Or, near a military base that is being closed, or near a mine, a steel mill, a logging town, a car assembly line? It is location, location, location. If your source of income does not care where you live there are a lot of places where the cost of housing has been dropping long term.

Posted by bidrec | Report as abusive

bidrec –

You are quite right that prices can decline in locations facing secular decline. Inflation is obviously not the only variable at play. Still I would argue that inflation tends to win in the long run almost everywhere. There aren’t a lot of places in America not called Motown where prices are lower than they were in nominal dollars thirty years ago. That is important because a standard mortgage gives you fixed payments for thirty years.

If inflation ever jumps the rails, and it is not clear to me that the Fed can prevent that risk now, then I’d rather own than rent almost anywhere.

Posted by DanHess | Report as abusive

Felix, I’ll say this one last time and be forever mum on the subject. For many people, the financial considerations of buying a home are only part of the equation. Safe neighborhoods, owning the place you live, improving it as you see fit, being a permanent rather than transitional part of a community are all factors. To continue to view home buying as strictly a financial transaction is to view it only from your point of view, which does not take into account the viewpoints of wide swaths of the population. I would submit to you this is a less than complete assessment of the decision making process.

Posted by Jeff.Baldwin | Report as abusive

I agree 100% with Jeff.Baldwin.

Posted by iflydaplanes | Report as abusive

Jeff, you’re absolutely right. Your first reason hints at the bigger problem here: for millions of people, the ONLY way they can live in the neighborhood they want is to buy a place there: rentals simply don’t exist. It’s a national tragedy.

Nameless, the problem is the standard deduction. The tax benefits of buying rest almost entirely on how big your mortgage is, and whether you’d be taking the standard deduction otherwise. It gets complicated, but generally they’re overrated — especially by brokers!

Timing the housing market presumes a level of analytical rigor and patience that simply doesn’t enter into many home buying decisions. The decision is motivated by life-cycle issues (promotion, retirement, new addition to the family, etc) and is generally made by women (spouses) in consultation with other women (brokers), within a very short time frame (“will go fast!”).

There is rarely the inclination to wait a number of months, let alone years, in anticipation of prices or interest rates or various ratios becoming more attractive. In other words, it is an emotionally driven decision (“I love it!”), not a financially driven one. The “deciders” simply want what they want, and are often less financially-literate than their skeptical, henpecked partners — thus, dispassionate analysis or appeals to reason are destined to fall on deaf ears.

Posted by finandistboy | Report as abusive

DanHess, the problem is that people don’t buy houses for the long term, most sell within 7 years. I’ll happily bet you that in seven years’ time, house prices will be lower in real terms than they are today.

I completely agree with Felix that home prices are still inflated.

The problem is when you have a family. In a place like Atlanta, renting is not prevalent for families.

I’m underwater with my mortgage but in a good school district. It’s probably the least worst outcome for us right now.

Posted by petertemplar | Report as abusive

Of course, some of us realize that those advocating buying over renting are just talking their book. You have to convince renters like me that I’m being foolish in order to protect your investment. It’s not working.

Posted by silliness | Report as abusive

I think Felix is addressing the topic adequately. We can all assume he and we know there are other factors in home value. He’s just addressing this one method. His audience is mostly professionals, not your average home buyer. We all know the investment value of a home.

I also say that home values are still over inflated. I think people who bought using the tax credit needed it and it shows. Some of the first time home owners I know of have no means of upkeeping their newly aquired property. At first site you might assume that they think they are still living in an apartment.

Posted by richmitch | Report as abusive

Such a weak argument. Not sure why they let you write for a column here.

Come on, who honestly believes that rent is not going to increase? You may be able to argue the house value not increasing, but simple cost of living increases will ensure that landlord is going to increase rents through the same period.

This is a mute argument. A house purchase is only slightly better than renting, always has been. Only the foolish look at a primary residence as an ‘investment’. The only true investment in housing is when you purchase the house not to live in, but to rent out to another. Why anyone in a new organization would consider a good investment one that you borrow at 5% to make 3%.

Posted by us_house | Report as abusive

I don’t think buying a home is, or at least should be, purely a financial calculation.

As a long time renter and now home owner, I can’t imagine going back to renting. There’s nothing like eating a peach from the peach tree that *you* planted. Or remodeling a room exactly the way *you* want. For many people (handier than I) much of the financial benefit comes from improving their home in their spare time. It’s sort of an extra job you can get whenever you want, but you get paid in home equity instead of cash.

Now the question of whether to buy this month or next month or next year — *that* is probably just a financial calculation.

Posted by bruce1963 | Report as abusive

Guys, you felt it right. Buying a house is not pure financial decision, but mostly based on surrounding infrastructure and job position. However, mortgages have 30 year horizon, whereas your personal situation changes sooner (like the guy above said – in 7 years average). That is the STRUCTURAL problem with the American housing. Prices and financing reflect economic reality of 1950s with many job opportunities and families settled down. However, modern economy requires people to be very flexible and mobile – which essentially means easy disposal of the house. This means prices are still inflated, unless the banks and capital markets start the easy money spree again, which I highly doubt.

Posted by Ananke | Report as abusive

As a renter there is nothing like knowing that you are financially secure and flexible in your lifestyle.

I painlessly moved out of my previous neighborhood at no loss when a transit construct project started that will cause 24 hour noise, dump truck traffic and freeway access disruptions for the next seven years.

I have slept easy through the recession knowing if I lost my job I have a big cash savings cushion and could quickly reduce my cost of living or relocate to another city if needed.

And in the last 12 years I have taken two years of “pre-retirement” to travel and explore, always lived in a neighborhood that suited my lifestyle choices and was close to where I worked, and relocated regionally to increase my income by 50% (which quickly dwarfs even bubble-era appreciation).

For those arguing lifestyle vs. finances in favor of buying, are you honestly suggesting that financial stability and disposable income *don’t* impact your lifestyle a great deal? You must not live in the USA.

Posted by Brad9999 | Report as abusive

Compare with Japan? How about we compare with our neighbor Canada. While we are getting the cr*p kicked out of us on real estate when visiting Vancouver (2010 winter Olympics) we found out prices are up 17% in the last two years. There was no recession and their economy is as close to ours as any country. Now that is a story Felix SHOULD write. What the heck have our politicians screwed up when Canada had no problem?? Are their politicians actually honest?

Posted by JJWest | Report as abusive

Brad, you seem to be arguing the same point. The real argument against buying a house is flexibility. I didn’t buy for years because I was always planning to move soon. After a while I just hated moving so I bought a house. Which I regretted because I promptly moved :) But bloody hell I’m staying put this time!

By the way, for a lot of people the 21st century requires *less* mobility than the latter half of the 20th century. More and more people work remotely. Travel is also much easier than it used to be.

Anyway, this is the main point: We had a housing bubble because houses became *investments* and not *homes*. That was a mistake.

Posted by bruce1963 | Report as abusive

“As a renter there is nothing like knowing that you are financially secure and flexible in your lifestyle. ”

ahah – spoken like a true transient renter. I own my own 40 acre piece of land with a 4,000sqft house and have hundreds of thousands in the bank and a nice small mortgage, just enough to take some tax breaks and make sure no one can snatch my kingdom out from under me.

I don’t need to move in a moments notice, bought my house below even today’s market value and sleep easy knowing I can quit my business tomorrow and not have to worry about moving to some crappy apartment next door to some shady renters.

“However, modern economy requires people to be very flexible and mobile – which essentially means easy disposal of the house”

Maybe in your little bubble you exist in, not for the rest of us that prosper and exist in the real modern world. I couldn’t imagine having to use mass transit or not be able to park my $80K Mercedes in my 5 car garage.

Renters? ahahha. Too funny. Its much akin to community college students being nothing more than an extension of high school. For all you ‘renters’ – its like you never moved out of the dorm.

Posted by homeowner | Report as abusive

We have lived in an aprtment up until a month ago.
It was a no brainer for us to buy, we went from a one bedroom one bath, eat in kitchen in a good location, tons of shopping, airports, close to the beaches, city, and highways, and multiple choices for public transportation, but is generally considered a not so good neighborhood. We would have been paying over $1100 when the lease expires in January. We now live in a two bedroom, two bath, deck garage, small piece of property, eat in kithcen dining room in a nice area with some if not all the other options. Our mortgage is $400 more but we feel we got so much more. If I want to rip down a wall, or plant a bush, or have over night guest not park blocks away or even bbq, have a pet or two or three we can do it, because we bought. Renting is fine, but I am glad we have a house of our own.

Posted by osito3 | Report as abusive

“I’ll happily bet you that in seven years’ time, house prices will be lower in real terms than they are today.”

Har, har! Thought I wouldn’t notice as you switched the debate terms, Felix? I thought we were talking about nominal prices.

If we can bring our debate back to nominal prices I will take your bet seven days out of the week.

Price/rent ratio is back to its long term average
http://4.bp.blogspot.com/_pMscxxELHEg/S1 oPEXSCBzI/AAAAAAAAHUE/X6AMpwaLKjI/s1600- h/PriceRentNov2009.jpg

This means in the United States prices may be about fairly valued. I am with you that there is presently a housing bubble, but it is in Vancouver, the UK, Australia and China.

Contrary to the Fed, which is reliably blind to inflation, inflation is actually up meaningfully.
http://stefanmikarlsson.blogspot.com/201 0/02/excluding-equivalent-rent-core.html

True core inflation is also up. There is an “increase in all-items inflation from 0.0% in January 2009 to 2.6% in January 2010″

Since Bernanke is determined to hold rates low for the rest of our working lives, and because America actually wants inflation to get out from under onerous debts, I think real assets are a fine idea.

One more point is that in many cases owned homes and rentals are not comparable, quality-wise, even in the same neighborhood. I have seen plenty of single family homes and townhomes that were owned and plenty that were rentals. There was nothing equivalent about them. More often than not, rentals tended to be shabby and run-down compared to the much nicer owner-occupied house next door. Go seek out a bargain on a rental house and see what you are actually getting. Granite countertops? Marvin windows? Fat chance! You’ll be lucky if the windows aren’t drafty and 40 years old!

Posted by DanHess | Report as abusive

There is an inconsistency in this view. The problem is that stagnating house prices can mean only one thing –a prolonged recession. And all advanced countries, including the US, cannot afford a prolonged recession, since government debt then goes up fast (see Greece). Actually, they even can’t afford a couple of years of recession… And yes, there is the other solution – to inflate. In that case calculations are not so simple, as also the rest of assets lose their value (in terms of today’s investments). As far as I remember from historical examples, real estate is has usually been a relatively safe investment during high inflation periods (your debt goes down and your property price up). On the other hand, as in the 30ies, real estate is not a good investment if a prolonged deflation is expected… And I am quite sure: there will be no prolonged recession + deflation as that would head the country right towards default. There will be either sound growth or inflation + recession. Both scenarios imply that to buy a house now is, at least, a relatively sound bet.

Posted by tk2 | Report as abusive

OH, yeah, and what about throwing all that money away as a renter? I live in California, and over the past 5 years I threw over $50,000 away in rent–money I will never see again. At least with a house you own it in the end, assuming you make your payments. With inflation looming I do not want be a single, 65-year old woman paying rent, which will surely be higher than now! I’d rather own something I can sell, rent out, or live in mortgage & rent free!

Posted by pessimist88 | Report as abusive

Given the size of the national debt, this nation cannot afford to deflate. It is a no-brainer that government will make policy decisions that keep the real value of its debt from gaining against the standard value of its currency.

Personally, I am very content with the thought of paying off a mortgage using inflated currency, since, regardless of any future change in market prices, my purchase/mortgage price remains fixed and I get something tangible at the end.

Posted by pointfish | Report as abusive

Mr. homeowner, although many dream your lifestyle, you represent merely 5% or less of the total population. I will be, and many other people will be more than happy to have your lifestyle, but for now it is not achievable. I don’t believe there will be a time in America when all Americans drive $80 k Mercedeses :), thus economic policies serving only your needs obviously don’t work. Hence, I called the current status a STRUCTURAL problem, and it is not going to resolve easily and quick.

Posted by Ananke | Report as abusive

A couple of points:

I am a real estate investor, and my houses are routinely nicer than the rest of the neighborhood. That is because I take as much pride in them as I do my own home. The neighbors generally find out they love me because I raise their property values when I sell a really nicely renovated home in their neighborhood, after bringing it back from the dead. That is what I do. In the meantime, I put in good, respectful renters that will follow my house rules or I will kick them out.

As far as inflation goes, if you use the same measure we had before changes began in 1980, we are at 9.5% inflation. Check http://www.shadowstats.com for confirmation. I researched this myself for a book I am writing, and I am confortable with this number. In addition, to check coming inflation, you can check the PPI measure the government puts out which shows inflation of raw goods producers pay which will eventually work down to consumers.

Posted by redrob25 | Report as abusive

In addition, homes are not assets in the financial sense, which many have pointed out. If you do not plan to stay in your home AT LEAST 10 years, then you might as well rent. By the time you figure out that most of your upgrades will not come back to you when you sell, the closing costs and realtor fees eat up most of your sale profits (at under 10 years), and the interest you paid to the bank is front-loaded on your mortgage payments, then owning doesn’t make sense short term. Neither does house swapping at 7 years, like the ‘average’ home owner does.

There is a reason people rent, and that is because during certain periods of your life, it makes more sense financially and to fit your lifestyle. It has nothing to do with not growing up. I would argue that good financial decisions are made by mature people.

Posted by redrob25 | Report as abusive

I am a big fan of home ownership, but the reality is it takes time to properly save and make that decision to commit. Home ownership is not an entitlement. It is a huge financial decision that most young people are not in a position to make.

In my opinion, based upon the huge amounts of money the government has printed, and the fact that we will most likely run the presses to devalue our current debt, that all assets will devalue eventually.

We will first have inflation, then hyperinflation, then when the jig is up, deflation and depression. See my inflation paragraph above, and you realize we are already in step 1.

If you can get your house before hyperinflation, then you can pay it off when the funny money is printed. If you do not get it paid off, then you run the risk of being upside-down when the deflationary period hits.

Right now, timing is very important in the purchase of real estate, stocks and bonds. That should be an extremely important consideration in most people’s decision on whether to rent or to buy. Or whether to move in with mom and dad, and weather the storm.

Posted by redrob25 | Report as abusive

The wherewithal to answer to the financial burden of home-ownership appears to have been a question universally ignored over the last few years by both buyer and banker alike. Historically, the median price of a home in any given market should fall between 2.5 and 3.2 times that market’s median yearly household income. Properties that violate this average will invariably correct over the long term. No matter how they are packaged, fundamentals don’t change. Then again, some people never learn.

Posted by beesnees | Report as abusive

“Homeowner”, life is indeed great when you’re rich, and yes, when you’re rich you probably can’t rent a home of the quality you can afford to buy. Good for you! You might want to reconsider casually casting aspersions on others for “living in a little bubble”. Just sayin’.

For the rest of us who don’t yet have a net worth north of a million, the question at to whether the lifestyle and financial benefits of owning (of a house we can afford a payment on!) are worth it in areas where the annual price/rent ratio is 20-1 or greater is very real.

Posted by Brad9999 | Report as abusive

7.9 million homes are not paying their mortgage right now

Posted by STORYBURNcom_0 | Report as abusive

Thanks for reminding me about the ratios. The owner of the house where I live is offering to sell it to me at 14.4 times annual rent.

Posted by RichardBaum | Report as abusive

Come on people, there will be no end to this debate as everyone have their own financial/emotional values. It’s just like whether you want to get married or stay single. Follow your heart; do what you feel comfortable with. Let’s move on.

Posted by doctorjay317 | Report as abusive

We bought our house so we have a home versus an investment – which means I can paint it how I like – knock down a wall to make a bigger kitchen – whatever I want – go in the back yard and scratch my nuts or plant a tree.

It’s also a bit of a status thing – at least it was in our kids school system where the perception was – oh you have a house versus – oh you rent – gee you must be poor or not sticking around here.

So it’s lower in value now – so is a lot of people’s moral.
Once that is restored – and we see inflation kick in (as it historically has done with an overvalued dollar) – it all shifts around to happy days again. Course my view is biased – as we bought a house.

Inflation is coming – lock in and hang onto your long term low interest loans. My Uncle Joe went thru this cycle when he locked in a low interest loan in the 60s and was laughing all the way to the bank as we went thru massive inflation in the following decades.

Posted by Butch_from_PA | Report as abusive

Inflation will kick in. Home prices will increase and so will the stock market. If homes prices increase 10%, then the stock market will increase 50%. So why buy a house? i rather rent and invest in the market.

Posted by bailmeout | Report as abusive

DanHess, I didn’t change the debate terms! You wrote that “Long term, house prices must rise with inflation. It is a mathematical truism.” Picking 7 years — the amount of time most houses are owned for, as long term, I decided to take the other side of that bet, saying that they won’t rise as much as inflation.

In any case, it’s useful to separate the path of real house prices from inflation. If the bet was in nominal terms, I’d need to be right about both of them to win, you’d need only one.

us_house, felix has made some good points and he just didnt clarify everything about economy. your assumption is correct – that the rents would go up if cost of living goes up. But one thing you should pay attention to here is the inflation rate – it is not going anywhere. And I could see interest rate will start going up again in a year or 2. There are 2 possibilities: (1) the housing prices will stay at this crazy level until inflation multiplies in the following years. (2) housing prices will truly drop to a point where market will recognie that as a fair market price.

Posted by bib | Report as abusive

and i assume felix is thinking what i am having in mind – that the “short term” of the housing market will collapse until the current over pricing phenomenon is corrected. But yes, it is true that in the long run, (assuming that the location of the houses are ideal) the housing prices will beat inflation; but again, what inflation are you talking about? look back to 10 years from now, and look at the most recent months’ CPI and inflation indicator. Where’s the hyperinflation? none. So, the housing prices must needed to be adjusted (short run & mid run) before it goes up again (long run).

Posted by bib | Report as abusive

Rents right now are actually going down in most places due to over supply. And we have high inflation. Therefore, rents do not always rise when we have inflation. This is a fallacy.

Posted by redrob25 | Report as abusive

bib,

The CPI and core inflation numbers that the government has put out have been extensively modified since 1980. You cannot trust their numbers unless you know what they measure. They do not measure the cost of living. They measure only a very small and modified portion of the inflation that people will see in their every day lives.

Posted by redrob25 | Report as abusive

Felix –

I didn’t say that house prices will move at the same rate as inflation, but that they move in the same direction, i.e. “rise with inflation” in the long term. Those of us with mortgages are concerned with nominal prices because that determines our gains or losses. The rent/buy question therefore hinges on the direction of nominal prices.

My view is that houses on average are about fairly valued, after the crash, based on price-rent ratios (see my above link) and the fact that interest rates are low, making affordability high.

If I may be so bold as to venture a guess as to where you are coming from… Due to a lot of factors including mounting debt, perhaps you expect interest rates will be meaningfully higher seven years from now, exerting downward pressure on house prices.

The Fed is not impotent. They know now to pay attention to house prices. They have purchased mortgage debt via the bazooka of quantitative easing to drive down interest rates and will certainly do so again if house prices turn south again.

In a hard money system, a debt-deflation would be in the cards now, after a massive credit binge. But quantitative easing changes everything.

Posted by DanHess | Report as abusive

first of all the question of buy V rent is moot no one ever truly owns a house if you have a mtg and dont pay your bank then owns it if youre able to have a home w/o debt don’t pay the taxes and the state or county will take away your useing it in short you have the right to sell /rent /live in it but you never really own it to the point where you can do any thing you want with or to it

Posted by tony-3 | Report as abusive

Okay,i did not say that CPI measures the cost of living. I meant that CPI is a partial indicator of inflation, and inflation has partial impact to our cost of living. And notice that the housing prices were hyper-inflated for the last decade and the cost of living grew at a slow but steady rate. We are now entering the adjusting period until home prices return to normal, or, higher wages and hyper inflation should kicks in for a year or two to match with the existing home prices (which is not likely to happen). The US is not an emerging country, so its home prices shouldn’t be this expensive. Again, any possibility could exist; the existing home price could maintain at the current level if:
(1) there’s a high demand of home purchasing – driven by need or irrational desires (must be backed up by the buyers’ ability – as in financial power to be able to afford a down payment, having a stable job that pays well, with excellent rating)
– however, since all those “no down payment mortgage” and “zero down mortgage” offers are no longer available, plus many people nowadays either have credit problems or they just can’t afford to buy a house at this price due to the reality (wages aren’t great, and lifestyle)
– and that rent is always an option and a substitution for buying a house ;)
(2) irrational speculators/investors plan on resuming the unfinished asset bubble that went busted in 2008.
– this COULD happen, but they probably wouldn’t take the risk to hold these properties for another years just to watch the values of these properties to fluctuate within the current pricing levels.

Posted by bib | Report as abusive

that’s right redrob, because rent doesn’t always follow inflation and it highly depends on the supply & demand of the house rental market. It is a no brainer that renting is definitely a better option than buying a house at this very moment. And the home prices will definitely be adjusted before it slowly climbs back up again.

Posted by bib | Report as abusive

You has introduced an excellent post. You created your ingredient and not much to talk about. It’s like this wide-spread undeniable proven point that you can not debate with actually not wide-spread, everything has its different. Thanks for this details.
KB Homes

Posted by Helen22 | Report as abusive

Excellent discussion.
Although the NYT Calculator and most of this discussion seems to be dealing with the US market, I have tried to apply it to Europe.
Very few European markets are doing well. And except for very few major cities, it is almost always cheaper (read well, I’m not saying ‘better’) to rent.
Especially for 60+ semi-retired and restless, travel-hungry people like myself.
Say I do have the EUR 300.000 in cash needed to pay for a very nice apartment in Lisbon. Why on earth would I freeze that money, when I can also rent the same, or a similar apartment for EUR 1100/1200 per month? I’ll make some interest on secure investments and saving accounts.
In Winter I could go and stay 3 months in a 5* hotel on the Turkish Riviera for an average EUR30 per day.
Mind you, that includes my round-trip flight, transfers, a double suite for single use, all meals and drinks, internet and daily cleaning.
Egypt would be another option, when things were less stormy.
Friends and family can use my apartment in Lisbon when I’m not there.

What I read from this debate is that most people defending Home Ownership, do so for emotional reasons. They either have just bought one, or are trying to sell their house, which isn’t going too well.
There’s nobody honest enough to say: “Sh@t, you’re right. I wish we could sell and rent instead”.

In the old days you bought a house for your family, close enough to work. Many made their career within the company and never left.
These days are different. Companies move, and will get rid of you when you do not move with them. Universities have no space, so you have to go and get your degree at the other side of the country. Or somewhere else in Europe.
Imagine you are stuck with a mortgaged house you can’t sell. What do you do?

I doubt very much that the average m2 prices of houses in Europe will increase in this decade. Those countries where the interest rate on mortgages were tax-deductible (Netherlands, e.g.) are gradually abolishing this option.
The result is that people are getting worried, and start putting their houses on the market.
Few are buying, because that deduction was one of the FEW reasons their monthly costs were similar and only slightly higher than rental.
A dark picture ……

My tip: when you see a wonderful home, or an apartment in a wonderful area, try to make a good rental deal. I bet your purchasing price will be lower next year!!

Posted by Maria2011 | Report as abusive