Inman Weekly: The housing market is about to open up to sellers in a big way. According to experts, changes in the tax plan under the Trump Administration mean it is getting
RENT VS BUY Why Buying A House Almost Always Wins
Advocates of buying will use arguments that feature phrases such as "throwing away money on rent," "mortgage interest rate deduction," and "forced savings." They may even appeal to your sense of community by pointing out the social benefits of an ownership mentality.
Advocates of renting will say the benefits of homeownership are overrated while the costs are underrated.From the title of this column, you know where I stand. But let's give the rent advocates their due.Rent vs. buy: The case against buying a house
A popular argument against owning housing is that home prices barely keep up with inflation. Using Yale Professor Robert Shiller's data that goes back to the late 1800s, we're talking about just 0.2% annually. Yes, that's a decimal point before the two. Compare that with the 6%-7% historical real return of the stock market and you can see where their argument is headed. Buyers also pay closing costs, real estate agent fees, homeowners insurance premiums, property taxes, and sometimes refinancing costs.Then there are the "investments," which are often better classified as "cool stuff I want," or maintenance costs -- neither of which meaningfully increase the value of the house.I've owned a house for 10 years, so let's use me for illustrative purposes. Here's a list of things I've bought that cost at least $1,000 (often much more). Renters normally don't directly pay for any of this stuff.
- Hardwood flooring
- Deductible on homeowners insurance after my washer flooded the basement
- Landscaping (twice)
- Laminate wood flooring
- New roof
- Painting and fixture upgrades (pre-wife)
- New heating/cooling system
- New sliding glass doors
- Cutting down of diseased trees or trimming of healthy trees (three times)
- Stainless-steel refrigerator
- Painting, bathroom refurbishing, and fixture upgrades (post-wife)
When the Federal Reserve tallied it up in 2010, the median household had $77,300 socked away in net worth. In other words, when you look at a family that's doing better than 50% of us and worse than 50% of us and you add up all their assets (stocks, bonds, house, cars, IRAs, 401(k)s, gold, equity in private businesses, checking accounts, savings accounts, certificates of deposit, cash under the mattress, etc.) and subtract out all their liabilities (mortgages, student loans, credit card debt, etc.), you end up $77,300 to the good.How much of that is due to owning a house? Here's a picture:
We can speculate on why this is. I subscribe to the simple, classic argument in favor of homeownership. Each month, homeowners are automatically squirreling away the principal portion of their mortgage payment -- as opposed to the renter, whose whole rent is an expense. People sometimes forget that the alternative to a mortgage is paying rent (not investing in the stock market) when they argue that home prices barely keep up with inflation.As for the hidden costs of homeownership, I think a greater percentage of us than we'd like to admit end up blowing the money anyway -- on fancier vacations, or extra glasses of wine on nights out, or living in a more upscale house or neighborhood, or shoes, or playoff tickets, or whatever it is that keeps our median net worth at just $77,300. Don't misunderstand me. This isn't a call to arms for everyone to jump willy-nilly into one of the biggest, most complicated financial decisions of their lives. The harrowing stories from the housing bubble showed us what happens when we overpay or don't do our due diligence. There are also non-financial reasons that buying a house just doesn't make sense for some people.And nothing I've written should be interpreted as a justification to buy that expensive rug instead of putting a little extra into your 401(k).This is just a reminder that there are many theories on the other side, but the real-world numbers greatly favor buying versus renting when all else is anywhere close to equal.
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Michael Pion was voted Harrisburg Magazines Readers Choice Best Realtor for 2016 and was also voted 2014 REALTOR of the Year by the local REALTOR's association for his outstanding service, high princi....