On The No-Brainer Issue of Owning a Home

Paul Solman: 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…