Stronger home sales? Rent vs Buy?

There are reports that home sales are picking up. However, most of those are currently fueled by investors.

This means that homeownership really isn’t changing since investors are not buying the property as a home, but as an investment.

This may mean a couple of things:

1) People are choosing to rent versus buy a home. Who goes into those houses owned by investors? Renters do.

2) Time will only tell if demographics and the economy turn where renters turn into home buyers. Renters have the flexibility to move when their job requires a move. Homeowners don’t. People have noticed this and this may be a factor in their choice to rent versus buy so they don’t get stuck in a housing option they can’t easily get out of if they need to. Demographics plays a role on the demand side too … fewer people need fewer houses. Most houses in the past were built in the suburbs because that’s where the land was. It is not a given that the young would prefer living in a house in the suburbs versus somewhere closer to where their job or recreational activities are.

3) All this means … who are the investors going to sell to later? You see, investing requires two things: 1) the purchase, and 2) the sale. Most people do the first based on illusions of the second.

A home is first and foremost shelter. Renters recognize this. A home is an asset. However there are additional costs to ownership renters don’t have because the owner has them. These costs reduce returns. And, as recent experience shows, prices don’t always go up.

The New York Times has a rent versus buy calculator. In most cases, it takes a lot of years of ownership (means you need to keep the home … and thus your job needs to be secure there and not elsewhere. Remember though, buying is only better if you can sell! has an assessment to help you decide as part of their calculator since other factors also need to be considered. Home maintenance also needs to fit into your budget.

Do you have extra money (cash flow) in your budget to support unplanned ownership expenses?

I suggest using all three calculators in tandem.

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3 Responses to Stronger home sales? Rent vs Buy?

  1. Larry Frank, Sr. May 22, 2012 at 7:33 am #

    I mentioned the influence of demographics above. This website graphically shows the demographic changes in the US from 1950 through today and projected to 2050. Notice how the peak moves through the years and how the curve ultimately flattens. That represents demand. You can follow your cohorts (birth year) demographics in 5 year increments.

  2. Larry Frank, Sr. June 19, 2014 at 5:38 pm #

    Here’s another great calculator with slider bars to see the impact interactively

  3. Larry Frank, Sr. May 1, 2016 at 9:57 am #

    How much of a down payment do you need and what are other factors to consider?

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