Homeownership Versus Renting

Historically, homeownership has been viewed as a conservative path to building wealth.  However, the recent housing bubble, that saw values peak in 2006 and not fully recover until some ten years later, gave pause to the idea that owning your home is the best option.  For most people, a home is both an investment and shelter.  For buyers, in addition to the purchase price, there are continuing costs, including interest, taxes, insurance and maintenance. For renters, there is no investment component, or taxes and maintenance, but some insurance is generally advised.  However, renters typically have limited control over rental rates.

While generalizations are risky, it is important to note that inflation typically favors the borrower and owner of assets, and adds risk to the renter.

When to rent and when to buy is not a “one size fits all” decision.  However, for most families, duration may be the key.  Many experts in this area have suggested that renting typically makes sense if you are likely to move in 3-4 years or less.  If you expect to stay put for more than 4 years, buying may make more sense.  

A note of caution for “forever renters”.  What happens after you retire, perhaps on a reduced fixed income, and enter a period of increasing rents?

All comments and suggestions are welcome.

Walter J. Kirchberger CFA