Should We Really Buy A Home Or Just Rent?

After the real estate collapse of 2008-2010, it would be naive to infer that owning a home is a danger not worth taking. That may be the moral lesson to withdraw from the Great Recession.

A home is no longer part of a significant investment. It won’t make you rich. If you hate yard work as much as I, you’ll curse your home on the weekend. But, over the long haul, owning a home provides some key advantages over renting that are not fully financial in nature.

There is not anything would force renters to move—they could just keep renting most places. Similarly, homeowners could travel through frequently. Statistics show, however, that approximately one third of renter move every year compared with about six percent of homeowners, suggesting that renters move about five or six times as often as homeowners.

Staying in one place contributes to creating stability in your family. It asks that you to pose roots, to build relationships in your community with the schools, the soccer teams, churches and even the merchants in your neighborhood. Those relationships may turn out to be invaluable in a crisis—a sort of insurance policy against the unforeseen and uninsurable risks.

Over time, rent will tend to rise, roughly with inflation. Your rent is likely to eat away 25 percent of your income for as long as you rent. If you buy a home, your property value will likely rise roughly with inflation—not a complete return, but better than nothing. At the same time, your mortgage payment will remain constant.

If you compare two hypothetical families, the Rentsalots who rent and the Ownsahomes who bought a home, after a decade you’d see a fairly striking difference in their financial situation. Suppose that the Rentsalots started out paying $1,000 per month in rent. After ten years, their rent would likely rise to about $1345 per month (assuming a three percent inflation rates).

At the same time, the Ownsahomes purchased a home with a $1,000 principal and interest mortgage payment, assuming a four percent interest rates. With a five percent down payment, the Ownsahomes would have paid about $220,000 for a home with a mortgage of just under $210,000. After a decade, the Ownsahomes’ home would be worth about $296,000 and their mortgage balance would be down to $165,000 or so, meaning that their initial equity of just over $10,000 would have expanded to $131,000.

The Ownsahomes aren’t rich, but they get a meaningful amount of equity in their home now. The Rentsalots not only don’t have that equity. They’re now paying more each month than the Ownsahomes to rent their home.

Of course, the Ownsahomes had to submit a down payment. That couldn’t have been easygoing. If they had purchased their home in 2007, they might well have found that even after a decade they won’t have seen much if any appreciation because of the substantial fall in values that followed 2007. If something, say a lost job, had forced the Ownsahomes to move during the Great Recession they might well have regretted the purchase as they’d likely have lost their equity—and perhaps much more.

Home ownership should be regarded as a way to get rich. That argument would ask you to do unwise things, like buying a bigger home than you need or can afford. Purchasing a home that you can afford can maintain peace and stability over time. Don’t ask your home to provide you with the prosperous. View your home for a safe place to lift a family and you shouldn’t be disappointed.