As a career renter living in Northern California, I felt like I was missing out on a raging campfire of a good time in the housing market from 2003-2005. Prices seemed way too high to me to justify purchasing a home. My wife and I couldn't afford anything decent...but also couldn't figure out how others were buying into that overheated market. Were we missing something?
Fortunately we stayed out of the market. In hindsight it's blindingly obvious that it was a bubble. But it's not so clear when you're smack dab in the middle of the insanity. In fact, it's easy to feel like a moron when everyone around you is "making money" on houses that appreciate double-digits every year.
While prices in my local area (Sacramento) have eased off of their mid-decade highs, prices still look too expensive to me. When compared with renting, it's still no contest in terms of how far a dollar of rent will get you, versus a dollar spent on a mortgage payment.
Thanks to the pullback and current depression, we were recently able to rent a premium 2-bed 2-bath condo (with pool view and all!) for roughly half of what it'd cost to buy an equivalent type of unit. Not to mention that we have no property taxes, or capital improvements, or any of the other home ownership woes.
Last week Barron's published a piece called Renter Nation: The recession and shifting demographics will swell the ranks of people who will rent, not buy, housing over the next five years. Yeah Barron's!
Inspired, here are 7 reasons you should strongly consider renting over buying for the foreseeable future:
- It's still more expensive to buy than rent (in most areas of the US). Don't listen to the morons who chide you for "throwing your money away on rent" - these are the same geniuses who are hundreds of thousands of dollars underwater on their homes right now. To get a handle on the rent vs buy math, check out this excellent calculator from the New York Times (hat tip Carson for the heads up on this resource).
- The trend in housing prices is still down. Don't try to catch a falling knife! So what if housing is cheap now - it'd be stupid to buy a house and watch it get cheaper. Just rent for now - until we see an uptrend in prices. As always, the trend is your friend.
- Demographic trends are not favorable. The Barron's article outlines this well, as does noted demographer and market analyst Harry Dent. Dent sees the housing market finally bottoming out mid to late decade - short term he sees more PAIN.
- You don't get rich buying a house - anymore. That time is over - and good riddance. Wealth is created by entrepreneurship - not flipping homes to one another. If growing your wealth is your goal, you should deploy your capital in a more productive manner than a down payment on a home.
- Mortgage obligations kill your life flexibility. We are in a doozy of a recession, or an outright depression. You might lose your job. You might want to start a business. You might want to split town altogether. At times like this, the more flexible your "personal burn rate" is, the better. If times get tough and you need to cut your monthly spend in half, you can't do it if you're locked into a 30-year mortgage. But if you're renting, you can move into a shoebox to conserve cash until the storm passes.
- Deflation is here - cash is king. See #1 above - right now you want cash above all else. Real estate is not the place to be as long as deflation is in control. It may have its day once again, but not until the scale tips in favor of inflation. Please review our deflation investing guide for full details.
- Home ownership is a time suck, and it makes you lame. If you want to spend weekends doing yardwork, powerwashing your aluminum siding, and redoing the tiling in your kitchen - by all means be my guest. But you should realize and accept that we human beings have limited time and limited resources available to us while we're alive. Time is our most precious asset - and we must choose how to utilize it to maximize our personal happiness. For me personally, that does not include housework.
Renting has been very very good to me. My free time on nights and weekends allows me to enjoy a full social life, while entertaining a busy professional schedule too - of running a time tracking software startup, and also regularly publishing my deflation investing blog. I hope some of these thoughts help you break free from the American Dream paradigm that you must own a home in order to lead a fulfilling, successful life in this country!
Disclosure: No positions