(Click map to see more details on delinquency rates.)
This is a question I've increasingly started to ask myself:
As a renter in an up-and-coming neighborhood in Manhattan, I’m particularly interested in this subject. I pay an admittedly low rent — for New York City — of under $2,300 for a large two-bedroom apartment. When I run the numbers on any mortgage calculator, it looks like we’d be spending more than $3,500 per month on a $400,000 mortgage (including taxes, but not including all the unknown expenses that come with home ownership). I know there is an upside: tax breaks, an appreciating asset, a home to call our own and shelter from the shock of rent increases. But, increasing our outlay on housing by 50% or more sounds like asking to be house poor. We’re still going to save up and sure, we’ll likely get raises along the way, but we’ve resigned ourselves to being renters for up to another decade. I know we’re not alone; I’ve heard the same story from people I know or work with in places like San Diego, Chicago and Washington, D.C.
So, readers, when should someone give up the idea of owning? Is it OK to rent forever, or close to it? –Jennifer Merritt
Follow the link and go to the comments section to see what other think.
Readers of this blog know I have been a long-term renter and enjoy the perks and lower financial and time commitments of a renting lifestyle. A friend of mine used to always tell me that homeowners are happier than renters. I am extremely dubious of this claim if you controlled for income, age, and marital status. According to Nobel Prize winner Daniel Kahneman, two ways to increase your happiness levels are by 1) keeping your commute short and 2) increasing leisure time. Renting seems like a good way to accomplish both of these goals. It has certainly worked for me over the years.
The other argument I hear for owning vs. renting is that owning a home generates equity. I like to point out that as long as I'm single and renting, I am happy to live in a much smaller place than most homes. I can then invest the difference in the money I save by keeping a lower cost of living. My friends usually then shift to saying that most people wouldn't save the difference and that owning a home "forces" you to save. The question I have is that if someone doesn't have the financial discipline to save, do they have the financial discipline to own a home?
If I ever have a family, I think I would prefer to own a home, but until if and when that happens, I see no reason to rush buying one. Keeping my costs low through renting has allowed me to travel to all 7 continents, see all 50 states, allowed me to have the time and money to get my MBA, PhD, and law degrees, invest heavily in my 401k for years, and freed up my time to engage in significant hours of volunteering with my church and organizations like Give Kids the World. (I volunteered there weekly, working with terminally ill kids for over 7 years). I cherish all of these experiences and would not trade them for the equity I would have built-up had I bought a home when I initially graduated from college. I've also been able to keep my commute to less than 15 minutes for most of my professional career.
Incidentally, not having the financial obligations of owning a home also made me more free to take a few risks changing companies early in my career, each time with a significant increase in income. I suspect all the additional education I'm getting will eventually pay off as well. The financial benefit of keeping the flexibility of not owning may eventually outweigh the equity that I would have gained had I owned a home over the years.
I find it incredibly freeing to consider the possibility of being a lifelong renter. While this path may not be for everyone and may not be for me for the rest of my life, entertaining it as an option makes me feel much freer in the decisions and career choices I make. That too adds to my happiness.
See these previous posts on renting:
Read many more of my posts on renting here.
2 comments:
There is no doubt that on a micro scale...on an individual scale...that for some renting is indeed superior to owning a home. However, it would be interesting to know of studies that analyzed the macro consequences of home ownership on society...whether it improves social cohesion, community bonds, participation in society, etc.
My bet is that there is a huge social benefit in terms of social cohesion and stability due to home ownership being prevalent.
re: thinking,
I'm not sure that is all the case any more. Although I don't have the data handy and I'll have to do some research on the subject, my impression has been that while home ownership in the past has been a long-term expectation, with the recent bubble in housing, the length of time in a home has shrunk considerably.
Also consider that renting offers some flexibility. Not all renters are like the author and some live to pay the rent while for some of us, renting allows us to live. In the author's case and mine as well, we've had ample opportunities that have only been available because we weren't tied into a home.
I can go on a work trip to the Philippines or Costa Rica and not really care about my apartment or upkeep while I'm gone for months at a time. Plus I gain knowledge and become more cultured from the experience gained.
While my parents spent 30 years in the same house, my sister and brother-in-law may only be in a house for 7-10 years at most.
Second, you have to realize that as the fearless blogger notes, he has been dumping significant amounts of money into his 401k and retirement plans. Home ownership, outside of the most recent bubble, has not produced the returns that the stock markets have over time.
You may sock away, say $2000 a month into your house and build equity, but the return on the equity and, for lack of a better definition, the compounding effect of gains made in the stock market will eventually outstrip the investment in a home in the long run.
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