The NAR's Lame Case For Buying vs. Renting A Home

http://www.powersiteblog.com/wp-content/uploads/2011/03/Home-Ownership-Bus.jpgThese are scary days for the National Association of Realtors. First the financial markets took away the punch bowl and now the government is getting ready to turn the music off and the lights on. The mortgage interest deduction is under attack and even the biggest fans of giving away taxpayer dollars now believe that Fannie Mae and Freddie Mac need to be put out to pasture.

So if you are the National Association of Realtors what do you do? You launch a Home Ownership Matters PR campaign, the centerpiece of which is a Bus Tour. The bus tour actually started here in Chicago on March 5 at Navy Pier. Did you miss it? I don't know how. It had to be the biggest thing to hit Chicago in the last decade. If you had been there you would have been able to see...the bus, and tents, and realtors and aldermen talking about home ownership.

As part of this PR campaign the NAR is trumpeting several statistics regarding the social and economic benefits of home ownership in order to help make their case. I have no doubt that all the data presented by the NAR is 100% accurate. The only problem is that you can't draw any of the conclusions that they want you to draw from the data they are providing. Their use of data is a great example of how to lie with statistics. Here are a few examples.

  1. Home ownership is good for the economy and creates jobs. One job is created for every 2 homes sold and each median priced home sale generates about $60K in economic activity. Well, given that the average realtor these days is probably only doing 4 transactions per year (2 homes x 2 sides) that job is probably for a realtor, which explains why the NAR is so concerned about jobs. Of course, I'm being partly facetious here but the bigger issue is that, contrary to what politicians say, jobs and economic activity are not the end objective. Increasing the wealth of the nation is. This is a longer discussion but let's just say that in 1850 they figured out that broken windows create economic activity but are not good for the economy. Neither was Katrina or the recent earthquake in Japan or the building of the Oak Brook castle or Villa Taj. Besides, why should the government subsidize economic activity via homeownership vs. improvements in the nation's infrastructure?
  2. The net worth of the typical home owner has ranged between 31 and 46 times that of the net worth of the typical renter. Probably a true fact but what conclusion are we supposed to draw from this? That home ownership creates wealth? Obviously their intention but anyone who made it past the first week of an introductory statistics class knows that "correlation does not imply causation". Given that you need a down payment to buy a house and people who don't have down payments are forced to rent isn't it more likely that people with higher net worth buy homes? And if a renter only has $1000 to their name and a home owner has a $30,000 down payment then that's where your 30 times comes from. Geez! BTW, many of their statistics are used to incorrectly infer causation. Apparently misusing statistics causes you to become a realtor. Be careful.
  3. Homeowners feel more in control of their lives. This is an interesting one because even the NAR is forced to admit that the observed effect was small. In addition, if this group has 30 x the net worth of renters - and probably many other advantages - then wouldn't we expect them to feel more in control? There are actually several NAR statements along the lines of how people feel as a result of home ownership. But that doesn't really prove anything does it? There are thousands of choices that people make in order to make themselves feel better including smoking and drinking. I could add a few others also but I try to keep this blog rated PG.

Don't get me wrong. Even I'm looking to buy a place now (if I can find something that would make my toughest client happy) but the NAR's case for homeownership is pretty weak and their case for feeding at the government trough is even weaker. Basically there are three key reasons for buying vs. renting:

  1. You simply can't rent what you want/ need.
  2. You want to decorate your home to your specific taste and you're going to stay there long enough to justify the cost.
  3. You determine that in your specific case buying is cheaper than renting - in the long run. This is actually a fairly complex analysis that takes into account projected rent increases, tax benefits, and the expected appreciation of real estate (remember that concept?). Fortunately, the New York Times has this awesome rent vs. buy analysis tool that helps in this evaluation.

If you find one or more of these factors compelling then get on the bus. Just don't expect the government to help you out. And if you can't afford to buy a home on your own I suspect you will be just as happy renting despite what the NAR is trying to convince you.

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    Gary Lucido

    After 20 years in the corporate world and running an Internet company, Gary started Lucid Realty with his partner, Sari. The company provides full service, while discounting commissions for sellers and giving buyers rebates.

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