For years the American dream has been to buy your own house. You might rent for a few years while saving up a down payment and deciding where to live. Then you buy your first house, a starter home or if you listen to HGTV, more people want to buy their forever home. In years past, employees moved frequently (I moved 6 times) with financial assistance, but the commitment of lifetime employment no longer exists so people are moving less. So now people are asking themselves, which makes more sense – buying vs renting?
What's also interesting is the different ways various industries are approaching the topic, as we're charting unknown territory versus the traditional and proven ways of the past. So this article reviews the approach taken by various companies and/or media organizations, to help you think through the question of buying vs renting, a decision you might need to make sometime in the future.
What Drives the Buying vs Renting Decision?
One of the most interesting perspectives found was in the National Journal, a Washing DC publication offering in-depth analysis on legislation, politics and the structural trends shaping America. Their article, A Solid Foundation – Why Americans still long for their own homes, is based on the latest Allstate/National Heartland Monitor poll (the eighth in a series looking at how Americans are navigating the changing economy).
The key messages in the article were:
- Home ownership is a very social and emotional decision. People want to raise families in certain communities and pass their homes on to future generations. These goals remain strong regardless of how homeowners were affected by the housing crisis.
- Younger people are weighing the buying vs renting question more, as they've watched friends struggle with debt due to the housing crisis and employment instability.
- People are concerned about government's role in the housing crisis, especially how it's affected the stability of communities. In fact 50% (vs 42%) want to see government reducing it's role in the mortgage market.
Wondering Who's Advice to Follow
It's fascinating researching topics to insure articles on Home Tips for Women are complete and correct (to the best of my ability). So where I thought I knew the pros and cons of buying vs renting, imagine my surprise and confusion when I found 2 headlines that seemed to be saying different and conflicting things … both respected media giants.
- On May 2, 2014 – the Wall Street Journal using data from Deutsche Bank, published The New Math of Renting vs Buying, Here's how to figure out which strategy makes the most financial sense. They say “The monthly cost of renting was lower than buying in 20 large metropolitan areas at the end of last year … up from 15 large metropolitan areas a year earlier.”
While the map below shows 20 metropolitan areas, you can view the entire list of cities at Rent or Buy? How 54 Metro Areas Rank.
- On March 5, 2014 – Forbes published Buying a Home is Now 38% Cheaper Than Renting. Their article is based on Trulia's Winter 2014 Rent vs Buy Report, stating “Homeownership remains cheaper than renting nationally and in all of the 100 largest metro areas“.
If you're trying to answer this question now, you should look at Trulia's infographic below. In fact, you can click on any of the 3 factors up top – mortgage rate, income tax bracket and number of years you expect to stay in your next home. You'll see the circle colors change, especially if you're not planning to stay in a new home for very long.
Buying vs Renting – What Lessons Have We Learned
Deciding whether to buy or rent is a very personal decision, that involves family goals, the current real estate outlook for where you want to live and the current financing options available to home buyers.
Many young people who's only experience is the collapse of housing prices in the late 2000's, need help picking the best solution and it's not easy. My best advice is to take the long term view, and recognize that the median sales price of an existing home (slightly lower than new construction), rose 81% from 1993 through 2013.
Good luck making your decision, and we'd love for you to share your homeowner story with us.