HOUSING -- September 28, 2010 at 4:35 PM ET
A Fresh Look: Rent Now, Buy Later?
We asked Paul Solman to weigh in on whether to rent or buy:
Since the 70s, it's been a no-brainer. Buy or rent? Buy, of course. You'll be making an investment instead of just paying off some landlord. And besides, you'll get an income tax break on the money you borrow to make the purchase.
Behind the imperative, though, lurked an historical anomaly: housing prices rising faster than inflation, pretty much everywhere, pretty much for decades. You've heard the story incessantly since the crash: rising prices led to more valuable house collateral led to looser lending led to higher prices -- the fabled virtuous circle that reversed itself of a sudden, and turned vicious.
So where are we now? To answer definitively would be an act of presumption, and folly. As only newcomers to this page or regulars with aphasia will be surprised to learn, there are two kinds of economists: those who don't know the future, and those who don't know they don't know.
But now that I've hedged myself, let me remind you: what goes down does not necessarily go up. At least, not any time soon.
The NASDAQ index would be a good place to start -- and a good place to stop, perhaps. Representing a highly diversified portfolio of technology stocks, it topped 5,000 back when Bill Clinton was in office. Today, two wars and two presidents later, it's barely above 2,000.
Too parochial a statistic for you? Too short a time frame? How about the entire Japanese stock market over the past generation? During Bush I, the Nikkei average hit 39,000. Under Obama I, it struggles to make 10,000.
Meanwhile, Japanese real estate hasn't fared much better. Recent estimates I've seen suggest it's still down 50 percent from its peak, reached when Shaquille O'Neil was still in high school; Lady Gaga, in diapers.
So when someone assures you that now is the time to buy your home instead of renting, feel free to share the line about how many kinds of economists there are. There are of course reasons to buy: no landlord, pride of ownership, sense of self-determination among them. But of course there are also reasons to rent: mobility, freedom from the burdens of proprietorship, no bank to deal with. I would suggest weighing the two sides at your leisure. But don't go betting the IRA on the assumption that home prices will rise in the foreseeable future. They very well might. Then again...
Posted 5:30p.m. ET
Tuesday's NewsHour opens with a housing question, to buy or to rent? While traditional wisdom holds that it's better to be a homeowner, sometimes the numbers simply don't add up and renting might actually be the better option. To help you answer this question for yourself, we've scoured the Web for the best calculators for renting versus buying.
Each calculator works a bit differently, so it's a good idea to try several rather than just one. The cliché "location, location, location" is important here, too: sometimes the housing value of a city is such that buying might not make financial sense at all (such as the inflated prices of New York City, Seattle and San Francisco, where the cost to buy can be 32 times the cost of a year's rent). The calculators, while powerful, can only estimate what the economy will look like in the future. Results should be taken with a grain of salt and be used only for consulting purposes.
Use this calculator if you tend to move around from place to place. The strength here is seeing in big, bold type and graphics how long it makes sense to rent before it makes sense to buy. The analysis includes a year-by-year look at what you'll be spending should you rent versus buy. An easy tool to use and understand, the editors have also included various explanations and definitions for those of us who don't spend our days comparing lost opportunity costs.
Not as pretty or inviting as some of the other calculators, the best part of this calculator is the list of definitions at the bottom. Keep them handy when filling out some of the other calculators.
Simple to use, this calculator smartly puts the definitions of each item right next to the prompt. The results show how much you would spend over the life of a home loan if you rented instead of bought, but lack any in-depth analysis. However, it does link to other types of (non-NewsHour tested) financial calculators such as home affordability.
Also relatively simple to use, this calculator puts its currency in the detailed analysis as to whether renting versus buying makes sense for you in the long run. It includes a handy feature that allows you to let the tool estimate what property taxes and insurance would be -- making the process simpler -- and gives a graphical result.
Probably one of the best calculators, this site is simple to use (it gives estimates for some prompts and advises on other assumptions) with results that are easy to understand. Like many of the others, it shows how much would be saved, renting versus buying, over the life of a home loan. It also breaks down the yearly cost of some larger indicators, such as appreciation and cost of buying.