That rent vs. buy question doesn't look so obvious anymore

During the height of the residential real estate boom I’d often write the rent-vs.-buy story. If you’ve read the real estate section of any newspaper in the last 10 years, you’ve undoubtedly stumbled across some version of this story: Does it make more financial sense to buy a home or rent an apartment?

During the housing boom buying seemed like the obvious answer. Home values were soaring every year. Residential real estate looked like a great investment. Many, many real estate agents told me that housing values would never fall.

Things have changed. Today, renting looks like the wise financial decision. That’s because housing values have, indeed, fallen. A study by FirstAmerican CoreLogic shows that nearly 25 percent of U.S. homeowners, about 11.3 million homeowners, are now underwater on their homes. And according to a study by financial Web site Bankrate, 10 percent of homeowners regret having bought their current home.

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Ed Padilla

I recently spoke with Ed Padilla, chief executive officer of NorthMarq Capital, a commercial real estate services company, who told me that multi-family properties remain the most stable of all commercial real estate types in today’s struggling economy.

“In a downturn, people are more likely to rent,”  Padilla said. “They need a place to live and apartments have a smaller downside than do other forms of property.”

The pendulum has swung, then, on the old rent-vs.-buy question. Of course, it won’t stay on the “rent” side forever. Give the housing market five years. People will be telling us again that housing is a terrific investment. But you can bet that they won’t tell us that housing values won’t ever fall. We’ve all learned that lesson.

Comments

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  • So in the long run it's better to buy, if you can afford it that is, I've always been told if you do one thing in your life it should be to own property. Lastly, I would like to quickly recommend a site for your readers if they are looking for a place to rent or buy in Chicago http://homes.trovit.com I hope it is helpful.

  • Thanks for the comment, Zoe. I'm not sure if buying still makes more economic sense. There are many times -- like when our dishwasher goes out or our hot water heater starts leaking all over the basement floor -- when I think owning a house really is a questionable financial investment. There are other benefits to owning a house, of course. But sometimes the financial argument seems a bit weak to me.

    Dan

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