If homeownership is the American dream, then the nation had better wake up. That’s the message from a new research paper that examines whether buying or renting a home was a better financial decision over the past 30 years. Most would find the result surprising: over the period Americans were better off renting between 65% and 75% of the time, depending on the investment alternative.
The article by Eli Beracha (East Carolina University) and Ken H. Johnson (Florida International University) essentially looks at eight-year periods and assumes that a person invests the money he or she saves by renting. Since buying is generally more expensive than renting, renters have extra money to invest. It also makes a number of assumptions favorable to homeownership, including gains from the mortgage interest tax deduction, the option to refinance, and the ability to walk away — loss-free — from an underwater mortgage. Still, renting wins approximately three-quarters of the time.
Read: “For the Past 30 Years, Renting Was Generally Better Than Buying,“ an article by TheAtlantic.
- “Buying is cheaper than renting in most U.S. cities” – CNN Money, August 16, 2011
- “Friday Business Report: The ‘Buyer’s’ Market” – Miami Herald, July 22, 2011
- “Secondary Sources: Rent vs. Buy, Debt Thresholds, Gang of Six Plan“- The Wall Street Journal, July 21, 2011
- “Rent vs buy datapoint of the day” – Reuters, July 20, 2011