Better to rent than to buy?


As a kind of object lesson, I sometimes show my buyer-clients how much the seller (of the property they are interested in) has lost in the past 5 or 6 years, especially if they bought at the peak of the market. Once you add in interest paid, loss of equity, improvements that do not recoup much of the seller's investment, property taxes, homeowners' insurance, private mortgage insurance, maintenance, and transaction costs on resale, it turns out that the seller would have been much better off renting. The same calculations also apply to sellers who bought in the years after the peak, encouraged to buy by the media's exclamations that we've touched bottom and prices will rise again to their old levels. And if they overpaid for the property in the heat of the moment or out of ignorance, they often end up losing even more, in fact, sometimes setting themselves back a decade financially and seeing an inheritance go up in smoke.

If you rent, and IF your landlord is local and bought the property when prices were reasonable (and so owns it outright), your money goes into the local economy, rather than to Wall Street. If more folks rented, there would be more tenant-friendly laws (similar to those in Germany, where the lease terms are 10 years or more, and where most people prefer to rent than to buy houses). You would save money on repairs and improvements and property taxes. Yes, you're paying rent rather than interest to the bank or an Asian holder of a mortgage-backed security or another 1% elite, but you would have no risk of losing equity if our hyperinflated prices go south. A local landlord will be more responsive, on the whole (all else being equal).

With more renters too, there will be less upward pressure on real estate prices, and less people who become pawns of the global debt markets and the 1%, working for years to pay off a high mortgage, and rents themselves would be much lower. For what has happened in the Third World, with elite investors hollowing out countries with debt, has come home to roost in this country, with debt driving up not only housing prices but also college tuitions. Renting, I think, is the wave of the future, once the current generation, burdened by student debt already, sees the light and realizes that the skyrocketing home prices of the 1980s to the 2000s were an anomaly, one that will never again be repeated.

This is not to say that there are not huge advantages to owning a house and land. But once you buy into the global debt market, working for decades for the benefit of elite investors, the game changes. In any event, the prospect of building up equity should not factor into your buying decision.

David Hopkins 2013