Five Times Renting is Better Than Buying a House

Generally, I believe that buying a house is a better deal than renting. That said, the difference isn't really that much from a cost/return standpoint and the way things are dropping in the housing market, renting is looking like a better deal every day. Parade magazine claims that renting is actually a better financial proposition for 30% of American households. In particular, they claim that people in the following circumstances are especially likely to find renting to be a better deal than buying:

1. Your finances are a little shaky.   
2. Housing prices are rising much faster than rents in your area.
3. You don’t plan to stay long in one place.
4. Your main motive for buying is long-term gain.
5. You’d rather be traveling than fixing your toilet.

None of these really apply to me, but I can see their point on each one and agree that the more of these that are true for you, the closer renting will be to being the better deal.

The one thing I'm surprised they didn't mention was falling housing prices. After all, if prices are dropping 10-20% per year in a given market, isn't it a better deal to rent (at least until you feel the market is turning around?) Then again, if you're looking for a great return, just remember item #4 -- there are better returns to be had elsewhere.

Comments

[Robin]

I really don't get this whole "well, now that the market is down, buying a house isn't such a good deal" thing. To me it's like hearing a stock is undervalued and therefore not buying it, or choosing to buy a new TV at full retail price versus when there's a 30% off sale. You really would hang out and rent until a house that today is $140K goes back up to $180K, THEN buy? It makes no sense to me.

Buying price is everything--it's how you can ensure that even if you do sell in a downturn, you'll still profit. Even now, my 2 houses are worth 2 and 2.5 times what I have into them, respectively, plus I get nice deductions which make my own salary go farther.

The market is down, but unless we have another black plague like in 1349, our population continues to increase, certain housing areas become hotter and hotter and I can't imagine prices not going back up over time. Maybe not if you sell within 2 months (not that anyone does), but in a few years, you could be looking at some substantial returns. Renting has NO return. 0%. None of my other investments have returned anything near what my real estate investments have, and anything even close would be hugely high-risk. With real estate, you've got an insured asset, so you're never going to have that level of risk.

[cami]

I really don't get this whole "well, now that the market is down, buying a house isn't such a good deal" thing.

Here are some reasons why people feel this way:
1) Tip of the Iceberg - If the prices have fallen 5% in the past year, who's to say they won't fall another 5-10%. If people feel that they are at the tip of the iceberg in terms of falling prices and expect a continued slide why not wait to buy.
2) A down market isn't isolated. If you see a down market in other areas of your economy other than housing, you might question your job stability as well. You wouldn't want to buy and then lose your job the next month and then have to try to get out of it. Example: Michigan.
3) Foreclosures. It there are potentially a lot of foreclosures (due to others caught in the down market) in a neighbor it suppresses the home values of non-foreclosed properties in the area. Some parts of North Carolina and Ohio have been experiencing these problems.

[Lord]

The inverse of 2 is much more useful. If renting isn't substantially cheaper than buying, then you should buy. Keep inflation working for you, not against you.

[Lord]

2 is a bit misleading. If you are planning on buying in the next few years and you start seeing prices increase rapidly, then you should most definitely buy as quickly as you can. Rents rise faster than prices fall.

[cami]

Rents don't always rise faster when prices fall. If there is a large supply of rental units: overbuilding, people who can't sell who decide to rent out, etc. rent prices can actually be soft even though house prices are falling.

[rjfarrin]

I just sold a house within the last year on the tail of the real estate boom right before it became a bust and I think that renting is a better ticket right now because house prices are coming down so fast that to buy right now would really be stupid and a waste of money. Rents are rising a little but not as fast as house prices are coming down. It pays to wait this one out for now.

[Robin]

Ok, I have seen some good comments, but I still believe renting instead of buying is like not investing in the stock market so you don't have to worry about it crashing. Housing markets can differ so wildly from place to place--Michigan can be in a total recession, while in San Fran people are still in bidding wars for $1.3 mil homes. Supply and demand vary by area. If you do enough research, you get to know what price means a good deal in a particular area and you can wait for that--sometimes even hearing the market is down makes people list low to sell fast. If the house sells in one day, it was generally a good deal. Three months later still standing there, it's generally overpriced.

Each house is a different story--there's an overall downturn, but still means money can be made buying something undervalued. My hope is that high energy costs drive people out of their 50-foot ceilinged McMansions and into more energy efficient, reasonable homes. That's exactly what I am invested in.

[Moneymonk]

You’d rather be traveling than fixing your toilet <---
I love that one

Sometimes I want to just sell my home and rent so I can travel internationally. But then again I like to have something that I can say I earned. My house.
I try to do both travel and still have my home. I want my cake and eat it too.