Interest Rate Roundup

Wednesday, April 11, 2007

NY Times skewers the "It's always better to buy!" myth

I can't believe my eyes. Right there in the New York Times today is this headline: "A Word of Advice During a Housing Slump: Rent" The article does a fantastic job of skewering the myth that it's ALWAYS a better bet to buy than rent. Some noteworthy comments:

* "It’s now clear that people who chose renting over buying in the last two years made the right move. In much of the country, including large parts of the Northeast, California, Florida and the Southwest, recent home buyers have faced higher monthly costs than renters and have lost money on their investment in the meantime. It’s almost as if they have thrown money away, an insult once reserved for renters."

* "With the spring moving season under way, The New York Times has done an analysis of buying vs. renting in every major metropolitan area. The analysis includes data on housing costs and looks at different possibilities for the path of home prices in coming years.

It found that even though rents have recently jumped, the costs that come with buying a home — mortgage payments, property taxes, fees to real estate agents — remain a lot higher than the costs of renting [emphasis mine]. So buyers in many places are basically betting that home prices will rise smartly in the near future."

* "After the last big run-up in house prices, in the 1980s, a long slump followed. In the New York area, prices peaked in early 1989 and then fell 9 percent over the next three years, according to government data. (Adjusted for inflation, the drop was much bigger.) Not until 1998 did prices pass their earlier peak.

Keep in mind that the 2000-5 boom was even bigger than the ’80s boom and that house prices on the coasts, according to the official numbers at least, have fallen only slightly so far. So it is hard to imagine that prices will rise 5 percent a year, or another 28 percent in all, over the next five years."

Somewhere along the line in the past few years, the word "rent" became a four-letter word. You were an idiot if you didn't buy a house. But the cold, hard numbers in many parts of the country show that renting is a better financial bet unless home prices continue to rise sharply, and the chances of that happening in my view, are about as good as the chances of me hitting the Powerball jackpot.

The sad thing is, a lot of sellers still don't get it. They are still trying to sell at sky-high prices that would leave potential buyers paying much, much more each month than renters are paying for comparable property -- or even the same property itself!

This example I put together from back in September 2006 says it all. By the way, the home referenced in that post is still on the market ... and the asking price still hasn't changed seven months later!


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