The Rent Vs. Own Debate

With the housing market being convulsed by the whipsaw effect of the pandemic, and a shortage of inventory decades in the making, there is a great deal of talk on financial media and personal finance sites as to which path to take: Rent or own? So they trot out comparisons of costs over time, but they almost never take into account what people actually need.

If the past few decades have taught us anything, no one knows what the outcomes will be, which makes the financial calculus these finance "gurus" trot out valid only in the time period in which its made.

So, speaking from my own experience, let your needs be your priority in making this choice. I realize with shelter costs being so preposterously elevated, you may not have that luxury. But absent that, let your lifestyle drive your choice.

If you're young, chances are you'll have a fair amount of job mobility once you enter the workforce and start making your own money, So renting makes sense not only from a practical standpoint, but also an economic one.

If you're starting a family, and things like school districts and public amenities become more critical to your choices, tying yourself to a permanent residence makes sense, because the time factor works in your favor. Purchasing a home is an expensive undertaking by itself, meaning in terms of things like closing costs, inspections, surveys, movers, and title insurance all come to a meaningful sum even before you take possession.

That's why renting, even if it doesn't provide a vehicle for building equity, is the best economic choice when your life is in a transitory mode. Making back the cost of moving out of a home and into a new one takes more time than people even imagine, or even add to their cost calculus. It ain't cheap, buying OR selling.

I've seen people trade up to bigger homes on fairly short terms, either because their careers may have taken an upward trajectory, or as I saw in the "aughts," people would see their homes rapidly appreciate, capture the profit on sale, and trade up to a bigger home while keeping their mortgage payments level. It may seem like a clever strategy, but in time, the additional cost of upkeep and higher property taxes may work to erode your financial security at a time when your thoughts should be turning to asset preservation and crisis prevention.

But, people do enjoy indulging themselves. I just think doing it with swapping your primary residence is a bit too indulgent, especially given all the work and money involved.

In any case, I do not envy the stark choices of today's homebuyer. Years of underbuilding, mass migration of the workforce due to the pandemic, and even the work from home/hybrid paradigm has created a bleak and frustrating situation.

Unfortunately, it will take years for the market to normalize. Even given this, the same rules apply.

5/7/24