Home: Rent Or Buy?

The New York Times recently published an elaborate chart of the cost of renting versus buying a home.

Well, I could not get past the first line before I had a problem with their analysis.

It assumes home values will increase 1% per year.

This is the thinking that provided the foundation for the current worldwide economic debacle.

The chart is mathematically correct.

OK, I don’t do math, I assume the calculations are correct.

But these type of charts are always based on assumptions.

Where I live, Michigan, homes are not appreciating 1% per year, they are continuing to decline faster than that.

Next, it assumes rents will increase 3% per year.

Huh?

Realtors, like the one I am married to, refer to unsold homes on the market as, inventory.

The inventory here, and in much of America, is huge.

There is close to a 3 year backlog of “shadow inventory“, homes that the banks have already foreclosed, but have not yet put up for sale.

Why?

Because, increasing supply with demand the same reduces prices.

And no one owns more homes for sale right now than the banks.

They do not want to depress prices further.

So, more foreclosures coming, more houses for sale, guess what?

More homes will be put out for lease, so the owner gets something.

More homes offered for rent, rents decrease, not increase as the chart assumes.

And in the footnotes at the bottom, more assumptions are outlined.

One that is not, is that renting a home usually includes appliances, you do not have to do maintenance, shovel snow, cut the grass, and so on.

Buying something as expensive as a home used to be regarded as an investment.

A no lose investment, as the chart assumes with its 1% annual increase in home values.

Actually, purchasing a home is speculation, not investment, in these uncertain times.

Home: Rent Or Buy?

See also Should I Rent or Buy My Home?

If you enjoyed this post, make sure you subscribe to my RSS feed!

Sorry, comments are closed for this post.