Rent vs. Own: Which is the Winner Now?

Rent vs. Own: Which is the Winner Now?

In 2011, we wrote a blog post weighing the pros and cons of renting versus owning a home. In our assessment, we considered variables such as the economy and job stability, interest rates, home values, the rental market and the mortgage interest rate deduction. At that time, there was no clear winner between renting and owning. Now that two years have passed, have any of these variables changed? Is there a clear winner between renting and buying today?

Some variables have changed since our 2011 analysis. The U.S. economy and job market has recovered considerably, although slowly, which is good news if you’re considering buying a home. If you’re going to take on the responsibility of home ownership, you need to be able to cover expenses like real estate tax and maintenance in the long term, so the state of the economy and your job stability is important.

Housing market: Prices continue to rise

House values have also changed over the past two years. In 2011, home values were extremely low. Foreclosures and short sales meant previously unaffordable homes were selling at much reduced prices. Today, home prices are rising and fewer deals are available. U.S home prices jumped almost 11% in March 2013 as compared to March 2012 according to a Financial Post article. This may put some homes out of reach of potential buyers. It may also encourage potential buyers to get into the market before (and if!) housing prices climb higher.

At the same time, the rental market is also changing. Private equity investors, such as Blackstone Group LP and Colony Capital LLC, have been buying up low-priced homes and putting them on the rental market. In some areas, more rental homes are available than before, and increased availability may help keep rents low – a benefit if you’re considering renting.

Interest rates still very low

But not everything has changed since 2011. Interest rates remain low, and (as before) analysts continue to speculate on how long they’ll stay that way. If you’re considering buying a house, it makes sense to get in while rates are low.

As in 2011, the mortgage interest deduction also remains in place – for now. Discussions about eliminating the deduction continue. House Ways and Means Committee Chairman Dave Camp has been looking for ways to eliminate tax loopholes and, apparently, the mortgage interest deduction is under consideration. At the same time, several powerful groups are in favor of keeping the deduction, such as the real estate lobby. It’s anyone’s guess as to the final outcome.

My personal advice

Too many people buy a home based on the thinking that it’s a “smart investment.” A home is a tangible asset that requires time, money, and care; often times, your “investment” can feel like a big hole in the ground where you’re pouring money. If you’re looking for return on investment, my advice is to invest your money in stocks and bonds instead.

If you want to buy a home, buy it because living there will make you and your family happy for a long time. When you have this mentality – versus a “cash register” one – the market ups and downs won’t bother you. You’ll view your house as your home – one that sustains you and your family.

When you approach the home buying decision process this way, the decision to rent also becomes easier. In the U.S., we have an unspoken stigma about renting. If you rent – and you may have very good reasons for doing so – it’s assumed you can’t afford to buy a home. Due to this societal pressure, many people are driven into making a huge financial purchase for the simple reason they don’t want to tell people they rent. If they purchase a home they really can’t afford, they fall into financial trouble.

If you rent, and you want to keep renting because of the benefits it offers you, ignore this pressure. As I’ve indicated in this article, renting or owning a home both have their pros and cons. Whether you should rent or own comes down to your personal situation and what’s best for you.

If you’re considering a home purchase, however, and need a loan, consider Meridian Home Mortgage. We’re here to help you.