U.S. home prices have risen by more than 30% since bottoming out in early 2012, so it's a valid argument to say that owning a home is expensive compared with just a few years ago. However, that doesn't necessarily mean renting is a better option -- both buying and renting have their own pros and cons. We asked three of our writers which is the best option as we head into 2016, and here's what they had to say.
Selena Maranjian: There's no one-size-fits-all answer, but for many people, renting makes more sense these days than buying. For some people, the choice is very clear: Buying a home can be more costly, given the cost of the purchase itself, plus taxes and insurance, plus maintenance and repairs. If buying the kind of home you want would be tough on you financially -- or impossible -- then rent. Renting is also sensible if you don't expect to be in the home for too long. If you think you might be selling the home within a few years, you stand a good chance of losing money on the deal, because of the closing costs, the possible drop in the value of your home, and the money that you put into setting up the house the way you want it and then spiffing it up later to be shown and sold.
Where you plan to buy should also factor into your decision, as buying makes more sense in some regions, while renting does in others. The real estate research firm RealtyTrac compiles data on such things across 285 major counties, and it most recently found that buying was more cost effective than renting in 66% of them, but that leaves many counties where renting is best. Among the counties where buying is less cost-effective are Los Angeles, San Diego, and Orange, Calif.; King, Wash. (in the Seattle metro area); and Denver, Colo.
The Beracha, Hardin & Johnson Buy vs. Rent Index, produced by researchers at Florida Atlantic University and Florida International University, also favors renting for many people: "According to the latest BH&J Index, as of the end of the first quarter of 2015, the housing market in the U.S. and all cities in the index are trending either closer to renting being the superior option or strictly favoring renting over purchasing a home."
Your mileage may vary, so think about your particular situation, your financial health and goals, as you decide whether to rent or buy.
Matt Frankel: I think all three writers here can agree that there is no single answer to this question. However, I feel that buying a home is a better move than renting in the vast majority of cases.
For starters, rent is getting less and less affordable. According to Zillow, the median asking price of rental property in the U.S. is $1,575 per month, while the mortgage payment on a median-priced ($180,100) home would be just over $850 at the current low interest rates. Even with taxes, insurance, and maintenance, it's tough to make a financial case in favor of renting.
Additionally, buying a home locks in your housing payment for an extended period of time. Even if you find a rental property that will cost you the same amount per month as a purchase, consider that rent has historically risen by about 5% per year. So, an apartment that costs $1,500 per month to rent today can be expected to cost more than $2,600 in 20 years. Meanwhile, your $1,500 mortgage payment will still be the same amount.
Finally, of course there are the additional benefits of building equity over time, pride of ownership, freedom to customize, etc. These are all excellent reasons to buy a home, but I think the financial case alone is pretty compelling in the current real estate market.
Jason Hall: Matt and Selena have already indicated it does depend on your situation and location, so here's some food for thought on determining what makes the most sense for you.
Buying a house isn't going to make you rich. Home values have -- since the post-WWII housing boom started 70 years ago -- more or less kept up with inflation, meaning there are much better ways to grow your wealth, such as investing in stocks.
However, the biggest benefit to buying is this: You get to stop the clock on the majority of your housing costs. There's almost no chance you'll be able to fix rental costs for more than a year -- maybe two -- in most markets.
Can you imagine paying the same rent payment for 30 years? That's the real power of buying a home.
But there's a risk to buying if you can't stay put for the long- term: Millions of homeowners after the recession were unable to relocate even for the prospect of better work and increased pay, because short-term housing value drops left them owing more than their homes were worth. The situation was exacerbated by the housing crash, but taking on the risk of losing money (you'll give 6% to a Realtor when you sell) with limited upside may not be worth it in the long run; especially when you factor in the additional costs and responsibility of homeownership.
In summary, buy a home if you plan to live in it for years. Your home should be a place of safety and comfort, not an albatross. Yes, the sooner you can buy and hold, the better, but if it limits your mobility and prospects, you may be better off renting until you're more stable and financially settled.